The CRE industry presents a great opportunity for investors. No doubt, there are different types of housing CRE properties that one can consider putting their money in, but out of all, it is the multifamily housing market that is expanding every year at a huge date.
It is known that about more than 2 million apartment units have been constructed around the country in the last decade, which includes about $370942 units completed in 2020. This clearly shows the 50% increase over 2019.
This huge increase in popularity is promoting the construction. This is because the number of rent residents in the cities across the US has now increased by 31% in the last few years. Since the start of the pandemic, the housing market has led to gaining higher prices than they have ever been in 5 years.
Most of the market currently has a costly inventory, making it quite difficult to find a multifamily home at a good rate. As a new investor or even an experienced professional in the industry, one needs to understand multifamily property and its rising demand. It presents the opportunities the investors need to make the most of the money.
No doubt it is due to the unbalanced demand and supply chain in the housing industry and demographic that the higher income buyers and the investors are now managing to snatch more of the market even before the listing gets public. Given how many benefits the multifamily property investment can be; one can consider planning an investment.
But having support can be quite beneficial as it will assure you are putting the money in the right place. Also, you need to know the reasons behind such a great demand for multifamily property. The guide is here to provide all the essentials.
Reasons for the high demand for multifamily property
Most the renters prefer multifamily properties
Long gone are those days when the college graduates or the newly married couple were able to easily buy a house with a small down payment. Given how great the cost of living is increasing, it has made it much harder for young people to purchase any kind of living space, especially single-family homes.
Besides, the percentage of the renters increased between the year 2005 to 2016. Further, 91% of the newly formed household were noted to be for rentals; wherein multifamily occupies about 87% of the properties. It is a trend that is not going to change anytime soon. Thus it presents a great opportunity for investors in the residential property market.
The American family makeup has drastically changed over the last few decades. No doubt there are still many traditional households, but there is a growing number of families with single parents, divorced parents, or others.
Thus, Multifamily housing provides a great option for the family to make up for any of the given opportunities and find housing with the right number of rooms and structures suitable for the family.
Job growth opportunities are found in the urban areas where the land availability is sparse
Since the year 2000 to 2010, one has seen great population growth in urban areas, which was about 25%. The urban areas are now becoming a go-to place for jobs that most people are now looking for. In the currency scenario, 50% of the population is urbanized. The number is expected to grow greatly in the coming time.
It will be about 60% by the year 2013. The urban centers are now becoming the hub for global economic power, but they are incapable of providing the right living place. The demand is so high that the land is getting expensive.
Thus the developers are forced to be creative in the living spaces to get the most out of the investment. The multi-family properties provide good living space to the population and also ensure the investors get a good return from the investment.
Tenants searching for affordable housing options
Undoubtedly, the urban area is a reliable and easy place for finding jobs, but they are also expensive for those living and working there. The new commercial people are going to the cities, especially new families a, young people don’t have proper ways to get good rentals or the living arrangements.
Thus they look for a low-cost family house as an affordable option. The local government also provides low-income housing tax credits to the developers and other soft loans that can be used for developing a multi-family home, which will be a lot more affordable for developers.
Thus it provides a lower-cost rental option to the resident who, when satisfied with the property, will stay longer and generate better profit for the developer.
The property provides amenities that the single-family home cannot
The residents who search for multi-family housing in the urban areas are not just looking for low-cost properties but also the amenities that can make a living a lot for comfortable and easier.
The best multifamily properties in the urban area can offer a few benefits at residence like green spaces, private patio, in-house amenities, high-quality furnishing, etc., which is a lot more than the living space.
For the developer, the growing trend now involves developers utilizing empty spaces as a retail option. For instance, the development of the ground floor can be used for retail to gain extra profit and satisfaction. While for, the resident’s essentials will be available at a nearby distance.
Equity and debt equally appealing to the investors
Although it is known that the investors majorly choose the joint venture equity, now they are equally interested in debt and equity in search of better yield. It is known that investors now require a lot of creativity.
With the availability of a lot of equity investments, the pipeline is robust, but one needs to do aggressive underwriting and be extremely selective about the process opportunities that can easily be found across all the property sectors. But one needs to deal with them uniquely.
For instance, there are certain submarkets that will provide office and retail opportunities. Thus it is vital to find the right opportunity at the right time.
Lessons learned from 2020
The year 2020 has been quite a difficult phase for everyone. The pandemic-induced economic crisis was far greater than the need to be collaborative. This time the investors need to rescue equity instead of forbearance and stay focused on the operations.
It has been quite transformative because one has already received most of the reserved capital. Also, one has learned that transparency and communication will walk together to provide great results.
Now there is a vulnerability in the market as some of the registrations are playing out, but then they never recover in cash flows and in values. Besides the pandemic, floods, fires, and hurricanes have further brought in a great change in the investors.
Now, one needs to incorporate underwriting and climate change in underwriting so that they can gain the attention of the rentals and make the most of that investment.
The rapid growth of multifamily property
During the pandemic, the multi-family market was hit greatly, but since then, it has rebounded and is now prospering. The rent increase was up to 2.5% by mid-2021. This brought back the pre-pandemic levels and also has accelerated great demand since then.
There have been studies conducted that show the nationwide average rent on multifamily units was about 13.7% year over year, which has now reached an all-time high of $1572. It is great that the investors you are now choosing to take advantage of the rising rentals as it will result in large returns and investment.
The renters and the other side are suffering from the constantly rising multi-family prices as alternatives are quite low. Despite all the challenges, the demand for multifamily housing is high and is expected to grow for the foreseeable time.
The shortage of homes is now contributing to low vacancy rates. The buyers would move out to rentals to make place for the new tenants, but the housing market was so tired that most individuals could not afford to buy, especially the first time. Thus the multi-family properties serve them perfectly.
An investment in a multi-family property can bring a great return for the investors. Given how fast the demand is increasing, one needs to understand how to make the most of the available opportunities.
Being a new investor in the industry comes with a lot of challenges. Besides, finding good spaces for investment can be quite tough, so having professional support will make a great difference. Private Capital Investors is the one you can trust to get the services.
They have got an expert professional who was staying by your side to help you. As a trusted company, they will do it all to come up with a proper plan for you to understand the available investment options and get good returns on them. So to guarantee you are able to get the best outcome, you need to consider contacting them for the assistance you need.