Introduction:
Are you becoming interested in Multi-family Real Estate? Know these 11 good reasons to invest in coming up with a decision.
Real Estate for Multi-family Housing
Multi-family residential is a type of housing in which many independent housing units for residential inhabitants are placed within a single building or several buildings within a single complex. Apartments and condominiums are examples of these units.
The Value of Multi-Family Investments
This technique is ideal for those investors who wish to generate a constant cash flow while also increasing the value of their portfolio over time. A single-family home or a multi-family building are the two most common types of residential real estate to consider investing in.
When renting a home, single-family and multi-family houses are two distinct types of residences, each with a different number of units available for rent. Investing in large residential complexes outweighs the disadvantages of building a portfolio of tiny residences. Investing in multi-family real estate instead of single-family rental buildings has these three advantages.
Being a landlord is advantageous in multi-family investing. Interest rates and apartment vacancies have stayed low in recent years and are expected to remain so for the foreseeable future. Furthermore, due to depreciation, investors can deduct some of the cash flows generated by an income-producing property on their tax returns. Private equity real estate investors can now access an expanding pool of attractive financing capital. According to the Mortgage Bankers Association, approximately 60% of all commercial financing dollars will flow to multi-family investment projects by 2020.
Indeed, the MBA raised its 2020 prediction for multi-family investment credit activity to $390 billion, a record high, due to ongoing low-interest rates. The yearly yield on 10-year Treasury notes was expected to rise above 3% at the start of 2019. Long-term rates have remained close to 1.5 percent, with the expectation that private equity real estate will continue to access this low-cost finance.
Mortgage bankers aren’t the only ones hoping for a prosperous year in multi-family housing. According to a new National Real Estate Investor mood poll, it is the most appealing sort of commercial real estate investment. Our investment company’s income, appreciation, and tax-advantaged funds are all designed to benefit from multi-family real estate investments. Here are 11 reasons why multi-family investment will remain appealing in 2020 and beyond.
1. Money for Multi-family Housing is Readily Available.
Banks offer more debt capital for apartments, making mortgage loan approval easier than other property kinds. Mortgage Bankers Association’s Annual Report on Multifamily Lending stated that multi-family bank lending increased to $100 billion in 2018. However, multi-family real estate developments can access a larger finance pool than office, retail, or other commercial real estate ventures. The mortgage bankers say that 42 percent of multi-family loan capital, or $142 billion out of $339 billion in 2018, came from the government-sponsored firms Fannie Mae and Freddie Mac. Fannie and Freddie have made buying and selling multi-family homes easier by fostering a liquid credit market.
2. Multi-family Loans Have a Lower Risk.
Debt accounts for 60 percent to 80 percent of the capital stack in most private equity real estate deals, with investors contributing the remaining. While all kinds of commercial real estate stand to win from an extended stretch of cheap interest rates, multi-family housing has one huge advantage from the lenders’ standpoint. Rental income comes from a varied pool of renters, which makes multi-family investment financing a lower-risk option.
Office or retail properties are developed around a few anchor tenants, which are not necessarily straightforward or cost-effective to replace. Rental income can be lost for an extended period, and the expense of re-tenanting can be significant. Multi-family vacancies tracked by CBRE are at their lowest since 2000, and well-occupied buildings provide stronger cash flows.
3. Apartments Provide Steady Income.
The average five-year cash flow of multi-family developments in the NCREIF Property Index is 8.58 percent, an exceptional rate for a dividend investment. Of course, most investors will seek above-average returns, as we do at Our investment company. More about that is below.
Investors looking to create a significant number of rental units can also benefit from multi-family real estate. Buying a 20-unit apartment complex rather than 20 single-family homes is much easier and more time-efficient.
If you chose this option, you’d have to deal with 20 separate sellers and undertake inspections at each of the 20 different properties. In some circumstances, an investor would have to open 20 different loans for each property if they chose this method. Buying a single property with 20 units would alleviate all of this stress.
4. Rental Demand Remains Strong.
Multi-family housing has earned a comparative edge in tenant demand. Regardless of the situation of the economy, individuals need a roof over their heads. What’s more, the impetus has switched from condo to apartment development. Homeownership has declined to 1970s and 1980s levels in the United States, the Federal Reserve Bank of St. Louis finds. Downsizing aging boomers are losing ownership interest, many millennials delayed or abandoned home buying ambitions, and Generation Z, now coming of age and the largest generation to ever live, is entering the housing market with rentals first.
5. Apartments Close the Luxury Gap.
Multi-family housing developers have given households fewer reasons to contemplate a condo purchase. The quality of apartment development has risen. New buildings are made more sustainably, focusing on green space and recreational opportunities. Designs respond to current lives, blending technology with a service orientation targeted to the customer experience. As a result, apartments now serve many of the demands that earlier drove condominium demand.
6. Multiple Options for Multiple Price Points.
Demand is particularly robust for older Class B and Class C multi-family housing. Owners frequently seek private equity real estate partners to offer to finance for value-add upgrades that will justify increased rents. These buildings can be efficiently managed without extensive changes, making them worthwhile investments. Also, municipalities offer subsidies to landlords who house teachers, police, and other median-income tenants.
7. Improvements Unlock Hidden Value.
Reinvesting a property through capital upgrades and additions might have an almost immediate payoff because they can charge higher rentals. Renters are often prepared to pay more if the renovations are something they appreciate and benefit from daily, such as appliance upgrades, in-unit smart home technologies such as Nest cameras and thermostats, and package locker systems.
8. Rentals Extend Record of High Returns.
In successive five-year periods, multi-family properties in the NAREIT index have outperformed other commercial real estate equities. Also, the apartment sector has been less tensed than its office, industrial, or retail rivals across a quarter-century of returns, providing superior absolute and risk-adjusted performance.
9. Rents Keep Pace With Inflation.
Year-long lease terms position apartments to gain from strengthening market conditions. When salaries rise, rentals can move higher, while commercial properties are bound into multiyear leases. Our investment company staggers lease expirations across the peak spring and summer rental months when rent pricing can be maximized.
10. Growth Markets Improve Potential Return.
Research substantiates our idea of multi-family investing in smaller, fast-growing cities. Larger locations with low affordability ratios may have less room for gain, and profits may not always reflect the risks to which investors are exposed. This method is echoed in the National Association of Realtors’ market outlook, which forecasts more favorable conditions with inexpensive apartment rents and low vacancy rates.
A refinance might provide immediate payback. Investors do not have to wait for a building to sell to profit. They can borrow against the property’s higher worth by refinancing their loans, avoiding the capital gains taxes that occur with a sale. Owners of multi-family properties can refinance as often as they like during their ownership, earning tax-free distributions each time.
These benefits are inherent in multi-family properties. However, we use extra measures at Our investment company to ensure that our multi-family properties are better real estate investments. In this post, you may grasp more about the approaches we use.
Investing in real estate, like the stock market, can be approached in various ways for different levels of success. Investing in a portfolio of rental properties is a common strategy for real estate investors. On the other hand, single-family properties are referred to as multi-family properties since they have more than one residential rental unit.
Investing in multi-family real estate has various advantages. The possibility to expand one’s rental property portfolio fast and the luxury of employing a property manager are all advantages of owning a rental property.
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Come join us! Email me at mark@dolphinpi.us to find out more about our next real estate investment.