Everyone wants to make an investment. People make the investment to make sure they realize savings and lead a relaxed life post-retirement. There are different avenues for investment such as stock-broking, real estate and more.
While stock broking is widely preferred, some investors prefer making their investments in real estate business. Why?
Stock markets are highly volatile and the risks involved are very high. In the case of stockbroking, the money is in the hands of a third-party vendor while with real estate business; the investors have the opportunity to grow their capital more actively.
Most real estate businessmen invest in single-family homes where they buy the property, renovate and sell it to another party or make a rental income from it.
Over a period of time, every real estate businessman looks to increase their cash inflow. This is where multifamily investing can really help investors to boost their portfolio.
Expectations and Predictions for Multifamily Investing in 2019
The market dynamics for multifamily investment is frequently changing. Given the social, economic and political developments, investors are forced to take a broader and holistic look and decide what they want to achieve.
As an investor, it’s important to keep an eye on the market trends and act accordingly. The year 2018 saw an increase in the investments for multifamily homes and experts believe that the trend will continue into 2019.
So what are the factors driving the multifamily market and what you can expect in 2019?
1. Increased Rents
In a report by Marcus and Millichap (M&M), an observation made that consumer confidence has reached an all-time high. While the economy has seen the best period over the last 4-5 years, this has opened a plethora of business opportunities for the people in the United States.
People are earning higher salaries and their capacity to pay more rent is now high. This is where it gets the real estate folks excited! Having a multifamily investment over single-family homes (SFH) helps the investors to maintain cash flow even if a few of the units are vacant.
The trend of paying increased rents is set to follow an upward trend with an increase in demand. This is good news for multifamily investors who kept hold of their assets over the years as it becomes more practical for them to sell it and reinvest the money.
2. Increased interest rates
Given the strong performing economy and keeping in mind the inflation, the Federal Government of the United States increased the interest rates in December 2018. Experts predict a double increase in the interest rates in 2019.
3. Multifamily investment location
Location plays a vital role for real estate investors, especially with multifamily properties. Experts believe that things might not be the same across different regions. Pay attention to areas of high-growth and high-yield where demands are high.
As investors enter the new year, it’s important to look at the emerging market areas to invest and build a strong portfolio.
According to Forbes, the best multifamily real estate investment will be in the Sunbelt region spanning across the states of Florida, Georgia, South Carolina, Alabama, Mississippi, Louisiana, Texas, New Mexico, Arizona, Nevada, and California.
4. Millennials kindle multifamily investors and housing
The millennial generation in the United States play the major role in increased multifamily investments and housings in large cities across the U.S. Being in the age of 20s to 30s, millennials make up the largest population of individuals who stay in rented homes.
Especially, after being affected badly post the industrial recession in 2008, Millennials generate the demand for multifamily housing in major cities. Renting has become an affordable option for people and it takes time for them to transition from this phase to becoming a house owner.
It’s not just the millennials; even baby-boomers (people aged over 50 years) play a significant role to make this multifamily investment a bigger market opportunity for investors. As the baby-boomers retire from their jobs, they prefer selling their Single-Family Homes (SFH) and moving to a rented property.
5. Workforce Housing
Latest research from CBRE shows that 2019 will see specific segments in the market that will generate a lot of investment opportunities. One such niche is workforce housing. The market situation predicts that workforce housing stands great chances to generate continued ROI.
Slow paced wage growth in the past decade combined with a large volume of renters and limited alternatives will contribute to sustained demand for these workforce housing apartments and houses in 2019.
As a result, the demand for new constructions will automatically increase. The report also shows that workforce housing has brought in investment over the last 5 years is about 50% of the total for all multifamily assets. Several industry sectors are already benefited thanks to the workforce housing sector.
6. Short-term Lease Agreements
Multifamily housing property can be an attractive investment for investors as it can quickly change depending on the market conditions. When there is a high demand or an increase in inflation, the rents of these properties can increase pretty quickly.
When opting for a lease agreement, the industry standard for multifamily housing is one year. Owners can realize rent for the property at the earliest depending on the market conditions.
7. Opportunity Zones
Earlier in October 2018, the U.S. Treasury rolled out the new Opportunity Zones program that aims to boost the economic development and creation of jobs in specific designated distressed communities. Now that the zones have been designated, real estate investors can set up funds that will qualify for three different tax incentives from the government.
Firstly, a temporary deferral of inclusion in the taxable income for any capital gains that are reinvested in the Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
The second incentive is a step-up in basis for the capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held for at least 5 years and by an additional 5% if held for at least 7 years, giving a 15% exclusion of the original gain from taxation.
The third incentive is a permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years.
Why multifamily investments play a major role in 2019?
The overall prediction for 2019 is that multifamily investments will play a major role for investors. Investing in an apartment is your best bet as an investor in 2019 multifamily investor market. Making a multifamily investment will help the investor to –
- Realize increased cash flow – Multifamily housing investment gives an opportunity for investors to generate more income from their investments. Say, you have 12 houses in an apartment and you (as an investor) occupy one building, you can still rent out the other houses for an income. Multifamily investments yield more income on a per unit basis when compared to a single family home. This is more affordable and cost-effective for borrowers who either stay in the unit or further rent it out. Owning a multifamily housing results in a low Total Cost of Ownership (TCO) and increased cash flow after excluding the maintenance costs, taxes, building repairs and so on.
- Increased property value and demand – Given the multiple units under a single roof, more the income from your multifamily housing property, higher the value of the property when compared to single-family homes. Constructing a multifamily property in a specific area or region means more labour jobs and more rental options for millennials and baby-boomers.
- Reduced risk – One of the main reasons for investors to invest in multifamily housing is the lesser amount of risk involved with it. Even if a few units are vacant, you will still earn income from the remaining units which can help you recover from losses, if any.
- Increased tax benefits for investors – When you invest in multifamily housing, you will qualify for tax rebates and incentives from the Government. Foremost, investors can deduct the depreciation of the property from their personal taxable income. Taxpayers can also deduct the interest payments on loans gained for construction and reduce their burden. Make sure you discuss with your accountant on the exact tax rebates that are available for multifamily housing investors.
- Scale up in value – Multifamily properties are known to scale up faster in terms of property value in a very short time period. The longer you maintain the property, the better the chances for selling it at a higher value.
Conclusion
Overall, the forecast for multifamily investment looks strong for the year 2019 and predicts a strong market performance. Multifamily housing has its own benefits for investors when compared to single-family homes. However, it left to the investors to be selective and choose where they want to invest their hard earned money.
If you are interested to invest in multifamily housing or want to know if this is feasible with you, feel free to reach out to us and speak with our team of experts. You can call us on (972) 865-6205 or send us an email to info@privatecapitalinvestors.com.
