How will New Construction Affect My Rents - Posted by Ken P (Illinois)

Posted by paul on March 20, 2002 at 06:23:54:

Have you thought of buying the vacant land behind your building and putting up your own townhomes? Borrow against your current building and purchase that land. Just an idea.

How will New Construction Affect My Rents - Posted by Ken P (Illinois)

Posted by Ken P (Illinois) on March 15, 2002 at 10:39:41:

I invest in the suburban Chicago area and am currently looking at a 35 year old two flat that backs up to vacant land which will likely become a townhouse development in the next year or so.

The two flat has one 3bd 1ba renting at $1200 per mo. and one 2bd 1ba renting at $950 per mo. Will the building of new townhomes with prices starting at $150,000, affect the rents postivily or negativly on my older two flat.

Has anyone has had similiar experiences and what was the net affect on the rents in the older property?

Ken P (Illinois)

Re: How will New Construction Affect My Rents - Posted by JohnBoy

Posted by JohnBoy on March 15, 2002 at 11:52:04:

I would say if anything it will benefit your income over the long hall. With units selling at $150k they won’t be renting them for no $1200 unless they are willing to take a negative cash flow. So even if they rent at $1300 - $1500 your rents will be more desireable even with an older building. My opinion is the worse thing is it could keep you at the current rent level without being able to raise them for a while to comptete, but again that will just depend on the rents these new units go for. Will there even be any of these for rent? Or will these mainly be owner occupied units for the most part? I just don’t see many people buying these to hold as rental units unless they can rent them for good cash flow, which judging by the rents you are getting it doesn’t look like will unless buyers are going to put a chunk of money down on them.

Another thing you might do is keep an eye on these to see how fast they sell. If they build a bunch of these where they don’t sell fast enough it could be a good opportunity to be able to work out a deal with the builder to take some off his hands by lease optioning some of them to free up his cash flow so he can move on to his next project.