8) 3 Reasons Why This is the Best Time to Invest in Multifamily
Despite much uncertainty with the global covid-19 pandemic, in real estate, it was found that multifamily investments were not just steady but blooming. They proved to provide stable if not better than expected returns against all odds. In 2022, real estate experts and financial institutions predict housing and commercial real estate prices to remain high. Some are concerned that cap rates are getting too low with multifamily properties and that this might be a compelling reason to hold off on investing in these assets. However, we know that multifamily properties also offer incredible benefits of greater economies of scale. Here are some reasons why multifamily property investments still remain a great investment.
Cap rates are an important indicator of value but are not the only indicator. For example, lower cap rates don’t necessarily mean you’re getting a bad deal. What matters most is the cash flow, business plan and exit strategy for the asset. Think of it this way, at a 4% cap rate, every additional dollar in Net Operating Income (NOI) that is produced will generate $25 in value. At an 8% cap rate, an additional dollar generates $12.50 in value. This is where the business plan comes into play. If you are an experienced operator and know your current market can sustain higher rent values, leading to higher NOI, then it’s a good deal.
Numbers Don’t Lie
According to Neal Bawa, CEO of MultifamilyU, one of the foremost authorities on market statistics, “a tsunami of new renters will be created over the next decade.” Neal’s numbers show that:
- New renter households increased by ~10 million over the past 10 years
- Estimated 500,000 new rental households per year through 2025, but only 300,000 new units built per year in the past 3 years.
- Single populations are growing (rose by 15 million above married couples over the past 10 Years).
- Baby boomers are also looking to downsize to urban apartments
- US immigration continues to rise, and immigrants have a lower home ownership rate
- Tight construction market in constraining new supply
It is undeniable that the demand is growing and there is simply not enough supply in the market. Which makes this the perfect time to strategize as an investor and get in now.
Location, Location, Location
Ultimately, multifamily investments are not looked at from a national perspective, but from a microeconomic perspective. Every deal must be analyzed individually keeping in mind the local supply and demand, local jobs, and trends.
For example, according to www.weareapartments.com, a nonprofit data provider, the Houston market is still in need of 15,000 new apartments annually. Texas needs an additional 54,000 new apartments annually. Other major US cities such as New York, Baltimore, Boston and Philadelphia have many more barriers to entry such as city restrictions, making these cities more challenging to invest in.
With the right due diligence at the local level combined with an experienced operator, multifamily property investments can prove to yield great returns. Even with higher cap rates, increasing demand, combined with the perfect storm of renters and constricted supply still present a unique opportunity for a smart investor.
Interested in investing in multifamily properties but need help getting started? We have a remarkable opportunity to purchase a 300-unit multifamily property in Houston, TX and are partnering with an experienced operator that has over 2,500 doors and $292 million in assets. Learn more and come invest with us at www.albanyparkcapital.com.