I will lose deals over this. I already have. A broker sends over a shiny 2018-built apartment complex, beautiful finishes, low maintenance history, strong occupancy. And I pass.

Not because it's a bad building. Because the math doesn't work for what we're trying to do.

Our acquisition strategy at Top Tier is focused on B and C class multifamily built between 1960 and 2005 in Midwest markets. When people hear that, they assume we can't afford the newer stuff. The truth is we can. We just won't. Here's why.

Price Per Unit Tells the Real Story

In Omaha right now, here's what the market looks like for a 20-unit apartment building depending on vintage:

Built 1970-1985: $45,000 to $65,000 per unit

Built 1985-2005: $65,000 to $90,000 per unit

Built 2010-2020: $120,000 to $175,000 per unit

Built 2020+: $150,000 to $200,000+ per unit

That's a massive spread. A 20-unit building from 1978 might cost $1.1 million. The same unit count built in 2018 could run $3 million or more.

But here's the part that matters. The rents aren't proportionally different. That 1978 building, after a solid renovation-renovation), might rent for $900 to $1,050 per unit. The 2018 building might get $1,100 to $1,300.

So you're paying nearly three times the price for maybe 25-30% more rent. The cash-on-cash return on the newer building is dramatically worse. The cap rate on new construction in our market is sitting at 4.5% to 5.5%. On vintage product, we're buying at 7% to 9% cap rates.

That difference isn't marginal. It's the difference between a property that cash flows from day one and a property that needs appreciation to make sense.

Cap Rate Compression on Newer Product

New and near-new multifamily trades at compressed cap rates because institutional buyers and 1031 exchange buyers are chasing it. They want low maintenance, modern finishes, and a story they can tell their investors about "Class A product."

I understand the appeal. But compressed cap rates mean you're buying an income stream at a premium. You're paying more per dollar of NOI, which means lower returns, thinner margins, and more risk if the market softens.

When interest rates sit at 6.5% to 7.5% on commercial loans, buying at a 5% cap means you have negative leverage. Your cost of debt exceeds your return on the asset. You're betting entirely on rent growth and appreciation to make the deal work.

We don't make bets. We buy income.

A 7.5% cap on vintage product gives us positive leverage even at today's rates. Cash flow is real from month one. We aren't waiting for the market to bail us out.

The Construction Quality Argument Nobody Makes

Here's something counterintuitive. Many buildings from the 1960s through the 1990s were built better than what's going up today.

I'm not romanticizing old buildings. They have their problems. Lead paint, asbestos, outdated electrical, cast iron plumbing. Those are real issues and real costs.

But the bones are often superior. Concrete block construction instead of wood frame. Plaster walls instead of drywall. Copper plumbing instead of PEX. Heavier gauge electrical panels. These buildings were overbuilt by today's standards because labor was cheaper and materials weren't value-engineered to the bare minimum.

Walk through a 2020-built apartment complex sometime. Knock on the walls. You can hear your neighbor's conversation. The cabinets are particleboard with a veneer. The appliances are the cheapest stainless-finish units the developer could source. The LVP flooring looks great until it starts peeling at the seams in year three.

New construction is optimized for the developer's margin, not the owner's 30-year hold. The finishes look modern, but the useful life on many components is shorter than vintage equivalents.

I would rather buy a 1982 building with solid bones and spend $8,000 to $12,000 per unit on a renovation than pay a premium for a building that looks perfect today but starts showing its age in five years.

The Value-Add Opportunity in Vintage Buildings

This is the real reason we target older product. The value-add opportunity is enormous.

When we buy a 1980s building at $55,000 per unit, the rents are typically below market because the previous owner deferred maintenance and never invested in upgrades. Units have original kitchens, old carpet, maybe window AC instead of central air.

We come in and spend $10,000 per unit on renovations. New flooring, updated kitchen, modern fixtures, fresh paint, upgraded appliances. Total cost per unit is now $65,000 including purchase and renovation.

After renovation, those units rent for $200 to $350 more per month than pre-renovation. On a 20-unit building, that's $4,000 to $7,000 per month in additional gross income. Annualized, that's $48,000 to $84,000 in additional revenue.

Apply a 7% cap rate to that new NOI and you have created $685,000 to $1.2 million in value. On a building you bought for $1.1 million and put $200,000 into renovations.

That's a 50% to 90% increase in property value through forced appreciation. You can't do that with a 2018-built building. There's nothing to improve. The rents are already at market. The finishes are already modern. You bought the upside at closing, and you paid full price for it.

The Maintenance Reality

People assume older buildings cost more to maintain. They're right. But the question isn't whether maintenance costs more. The question is whether the total return, including higher maintenance, still beats new construction.

We budget $1,200 to $1,500 per unit per year in maintenance on our vintage buildings. On a newer building, you might budget $600 to $800. So yes, we spend more.

But our purchase price is half or less, our cap rate is 200 to 300 basis points higher, and our value-add returns are dramatically superior. The extra maintenance cost is a rounding error in the total return calculation.

The key is knowing what you're buying. We do thorough inspections. We scope every sewer line. We inspect every roof. We test every HVAC system. We aren't buying problems. We're buying opportunities that come with known, budgetable maintenance needs.

A 1985 building with a new roof, updated plumbing, and modern electrical is a better asset than a 2015 building with a compressed cap rate and no upside. Full stop.

When Newer Product Makes Sense

I'm not dogmatic about this. There are scenarios where newer product works.

If you're a 1031 exchange buyer who needs to park capital and is optimizing for tax deferral rather than cash flow, new construction can make sense. If you're an institutional investor with a mandate to buy Class A product, the vintage market isn't deep enough. If you're buying in a market with no vintage inventory, you don't have a choice.

But for an operator like us, buying in Omaha, targeting cash flow and forced appreciation, with a long-term hold strategy and active management capability, vintage product wins every time.

We aren't buying buildings to look at them. We're buying them to operate, improve, and build wealth. And the math on that strategy points to the same place it has for the last decade: well-located, well-built, underperforming buildings from 1960 to 2005.

The shiny new stuff will be someone else's deal. We will be across town, closing on a 1984 brick building with below-market rents, a solid foundation, and a renovation plan that creates real equity.

Looking at a deal in the Omaha or Lincoln market? We'll pressure-test your numbers for free. Reach out at Tanner@TopTierInvestmentFirm.com.

Tanner Sherman is the Principal and Managing Broker of Top Tier Investment Firm in Omaha, Nebraska. He co-hosts the Freedom Fighter Podcast with Ryan of Avara Investments.

Why We Don't Buy Anything Built After 2010