What is Unit Mix? Multifamily Investing 101

In multifamily investing, the term “unit mix” refers to the composition and variety of individual units within an apartment building or multifamily property. It refers to the different types of units available in the building, which can vary in terms of size, layout, and amenities. The unit mix plays a crucial role in attracting diverse tenant demographics and maximizing rental income for the property owner.

Example of Unit Mix in an Apartment Building:

Let’s consider an apartment building with a total of 50 units. The unit mix for this building could be as follows:

Studios (Efficiencies): These are compact units with a single room serving as the living space, bedroom, and kitchenette. Studios are often preferred by young professionals or individuals living alone.

• Number of Units: 10

One-Bedroom Apartments: These units typically consist of a bedroom, a separate living room, a kitchen, and a bathroom. One-bedroom apartments are popular among young couples or small families.

• Number of Units: 20

Two-Bedroom Apartments: These units have two bedrooms, a living room, a kitchen, and one or two bathrooms. Two-bedroom apartments are suitable for small families or roommates.

• Number of Units: 15

Three-Bedroom Apartments: These larger units feature three bedrooms, a spacious living room, a kitchen, and two bathrooms. Three-bedroom apartments are often preferred by larger families or groups of roommates.

• Number of Units: 5

Having this unit mix in the apartment building provides a diversified range of options for potential tenants. Some may prefer the affordability and simplicity of a studio, while others may seek the space and comfort of a larger two or three-bedroom apartment.

The unit mix also allows property owners to cater to different market segments and adapt to the demands of the local rental market. For instance, in an area with a higher concentration of young professionals, studios and one-bedroom apartments might be more in demand. In contrast, in a family-oriented neighborhood, two and three-bedroom apartments might be more desirable.

By offering a balanced unit mix, multifamily property owners can optimize rental income, reduce vacancy rates, and maintain a stable and diverse tenant base.

Factors Influencing the Unit Mix: Unraveling the Key Elements

In the quest to discover the ideal unit mix for an apartment complex, developers recognize that there is no one-size-fits-all approach. Instead, they meticulously consider various factors to achieve the perfect unit spread that aligns with the unique demands of the target market. Let us delve into these influential elements that shape the composition of a rental property’s units.

1. Location: The Nexus of Convenience and Appeal

The geographic location of an apartment complex plays a pivotal role in determining the appropriate unit mix. Prospective tenants gravitate towards areas with easy access to essential amenities such as transportation hubs, schools, hospitals, and workplaces. Consequently, multifamily investors and developers thoroughly analyze the age distribution and average household size within the locale to ascertain the feasibility of a rental property in that particular area.

In suburban regions, where families often reside, the demand for 2- to 3-bedroom apartments remains high. On the other hand, in bustling urban locales with soaring rent rates, studio units emerge as a popular choice for individuals seeking budget-friendly living spaces.

Furthermore, university towns witness a demand for student housing, necessitating a unit mix that caters to communal floor plans and larger bedrooms to accommodate multiple students comfortably.

2. Demands that Dictate the Mix

The housing demands of the market are a critical factor influencing the ideal unit mix. Different customer segments exhibit distinct preferences, which developers keenly observe and integrate into their plans:

• Families and larger households lean towards apartments with two or more bedrooms, offering ample space for their needs.
• University areas attract students who seek apartments with communal floor plans and spacious bedrooms that can accommodate 3-4 individuals.
• Seniors, often opting to downsize, find one-bedroom units to be more suitable for their lifestyle.
• Young professionals and singles, on the other hand, demand single bedrooms, studio apartments, lofts, and even two-bedroom units, ideal for co-living arrangements with other singles.

3. Development Size: Influencing Unit Types

The size of the apartment complex significantly impacts the distribution of unit types. Large apartment properties, comprising 50 units or more, tend to feature one-bedroom apartments as the primary unit type. Although two-bedroom units have gained popularity, one-bedroom units still occupy approximately 50% of such developments.

In contrast, smaller apartment complexes favor a higher proportion of two- and three-bedroom units. These layouts cater to renting families in need of additional bedrooms. However, striking the right balance is crucial, as having too many small units in a modest complex may pose revenue challenges, even with full occupancy.