Should I Build That Apartment Building?
(It’s All About Supply and Demand)
I’m back in the office today. I am determined to work diligently. With purpose, but without attachment. I sit down, close my eyes, and think good thoughts. I’m happy to be here. I’m lucky to be here.
I open my eyes. There is a pile of paper in front of me about nine inches high. Gio brings in a cup of tea. (She apparently thinks tea is better for me than coffee.) She sees the stack of paper and looks sad. “It piled up while you were in the hospital,” she says.
“No problem,” I assure her. “I’m going to do one thing at a time. I’m only going to worry about what I have to worry about today.”
She smiles. I don’t know what that means.
On the top of the stack is a report from an architect I hired to give me an estimate for converting my office space in Delray Beach to rental apartments. I’ve mentioned before that I’ve been looking into doing this because, since the pandemic began, the demand for office space has been dropping, while the demand for rental space has surged.
In South Florida, for example, rental prices are crazy high. A modest two-bedroom apartment in a middle-class neighborhood in Broward County will cost you at least $2,300. In Miami, the same apartment could be another $1,000.
And it’s not just Florida. Rental prices are high in most major cities along both coasts, spurring a surge of apartment building construction. In Delray Beach, there must be at least two dozen going up. Six of them are within a half-mile of where I’m thinking of building mine.
What This Means: The real estate market is cyclical, and prices adjust cyclically. But if you are in the business of buying and selling, or even buying and renting, existing properties, there are relatively safe ways to make sure you don’t get in trouble. (I’ve written about this many times.)
When you get into the supply side of the cycle (by building rental units), however, you take on an extra level of risk – the volatility that can occur during the two or three years it typically takes to build an apartment building of any size.
Right now, there is a strong demand for rental units. And it’s going to continue to be strong for – my guess – another two to three years. I don’t see this additional demand being negatively affected by recession. It could be stimulated. But the ability of renters to pay more than they are paying now, or even as much… that may disappear.
The Bottom Line: Demand is strong And supply is limited, but it is filling up fast. For me, this means my window of opportunity will close soon. I’m going to have to get started or sit back and wait for the next opportunity to build.
I don’t want to get myself crazy about this. I’m not going to send out a flurry of emails, trying to push this project forward. I make friends with the enemy: my fear of missing out on this opportunity to develop a big, profitable residential building. I imagine the opportunity flying away. I see my life going on happily without it.
I will act purposefully, but without attachment. I’ll send out one text to the architect, asking for answers to any questions I have after reading his report. But I won’t worry about it.
Learn more about the rental market here.
