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 multifamily 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?
Transit-oriented multifamily 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, multifamily 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.
Multifamily 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, multifamily TOD is needed, wanted, and generally in short supply, which makes it an investment favorite.
So, what could be bad about investing in multifamily 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 multifamily 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.