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Do Transit-Oriented Properties Make the Smartest Investments?

By: Farhan Mahmood, Managing Director of Acquisitions

Urbanization

As the urbanization trend has picked up steam in recent years, transit-oriented development (TOD) has been attracting more investors and developers.

Experts have suggested that multi family properties situated within a half-mile of public transportation are among the best categories for investors to consider.

Overall, TOD can be a win-win for both developers and investors, which is why these developments have been popular investment vehicles.

But, do they make the smartest investments?

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Environmentally Beneficial

Transit-oriented multi family properties are both cost efficient and better for the environment because they allow residents to commute to work and get around more easily without a car.

And they enable residents to commute more easily to jobs that are farther away, widening employment prospects for them.

In addition, multi family TOD helps to promote density, a necessary element in solving the housing shortage crisis that has overtaken many major metros throughout the country and another plus for the environment.

Multi family TOD also encourages additional development in urban areas to serve the apartment community’s residents, such as retail, restaurants, and medical.

This provides jobs and sources of revenue for those areas, which strengthens the economy.

Simply put, multi family TOD is needed, wanted, and generally in short supply, which makes it an investment favorite.

The Downside

So, what could be bad about investing in multi family TOD?

One potential negative is price.

Because TOD is usually done in urban centers, land and construction labor costs—not to mention, taxes—can be high, raising the price of the investment to levels that may be too rich for some investors’ blood.

You may also have quite a bit of competition from other investors interested in the same property.

With the supply-and-demand dynamics at play, this increased competition could drive up the property’s price considerably.

In addition, there tends to be quite a bit of red tape in the form of zoning, NIMBYism, and permitting to untangle before development can begin in these areas, which can delay development.

If you’re a investor, you may not have the luxury of that kind of time.

Do Your Homework

If you decide to invest in a multi family TOD, do your homework first.

Research the developer’s track record with this type of development, in addition to the need for housing in that location.

Learn about all of the factors that could impact that development, and have a well-thought-out plan in place.

Related: What are Risk Adjusted Returns and Why Do They Matter in Real Estate

Posted By Farhan Mahmood, Managing Director of Acquisitions

Farhan Mahmood is responsible for sourcing, structuring and financing Trion Properties investment opportunities. He has over 12 years of commercial real estate experience in valuation, disposition and acquisitions of numerous property types nationwide.

Since joining Trion Properties, Mahmood has successfully initiated acquisitions of non-performing loans, REOs and value-add multi family and commercial projects that have led to stellar returns for Trion investors.