An investment in multifamily real estate can help you diversify your investment holdings. This is an area of real estate that many investors have had personal experience with, so it may feel like a comfortable foray into real estate investing.
In addition to familiarity, though, there are many sound reasons to invest in multifamily real estate. Let’s take a look at the top 5 reasons.
- Demand for multifamily real estate should continue to rise.
Last year set a record for multifamily demand, with annual absorption – the total number of newly built apartments that were rented during the year – of 617,500 apartments, according to CBRE. That was up 238% from 2020 levels and 97% from 2019.
Vacancy rates in the multifamily sector are at their lowest in nearly four decades: As of Q4 2021, the vacancy rate was just 4.5%, according to Costar data.
It’s no wonder that a recent Berkadia survey found that 82% of mortgage bankers and investment sales advisors expect demand for multifamily housing to rise.
Many people prefer renting over owning their home, and there are many reasons for this:
- Home ownership is not a top priority for millennials or Gen Z, who are delaying marriage and may be carrying heavy student debt burdens.
- Rising home prices and mortgage rates have priced many people out of the market.
- As workers spend less time at each job, they want more flexibility to move for the best opportunities.
- An investment in multifamily housing can offer both income and appreciation.
Rents offer an income stream to multifamily investors, while the property itself may appreciate in value. And rents have been rising.
According to Redfin, in January 2022, the nationwide average asking rent for an apartment was up 15.2% from January 2021. Rents rose even more in particularly in-demand metro areas, with the top 10 growing markets all seeing rent growth of 30% or more from 2019 to 2022. In fact, only two metro areas that Redfin tracks saw rents fall during January.
- Multifamily real estate offers a wide range of investment options.
Apartments are in demand in suburban and urban areas, small and large cities, and across regions of the U.S. Properties range from garden-style apartments that may be just a couple of stories high to skyscrapers, from multi-building communities to single standalone buildings. Multifamily properties also cater to a variety of demographics, and include various levels of amenities – you can invest in Class A, B or C multifamily, or in affordable or workforce housing specifically.
- Multifamily real estate tends to be inflation-resistant.
Most apartment leases are for one or two years, which means rate changes can happen frequently. The ability to adjust rental rates to match the market gives multifamily real estate tremendous inflation resistance.
- Governments are focused on building affordable and workforce housing.
This focus stems in large part from rising home prices, and has led to a variety of government incentives for developers of affordable and workforce housing. This type of multifamily real estate can be an investment that is both profitable and performs a social good. The right types of housing help communities thrive, reduce homelessness and increase the quality of life for residents.
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