10 Reasons for Multifamily Investments in 2021

The real estate market was thrown into a turbulent state when the Covid-19 pandemic hit. Between people losing their jobs, being afraid or unable to move, the year in quarantine made a considerable impact on the market.

Even as life slowly returns to a sense of normalcy, there are several factors that continue to impact housing prices, buyer behavior and the real estate market in general. However, when it comes to multi-family real estate investment, the opportunities have never been better. Mortgage bankers aren’t the only professionals looking forward to a productive year for multifamily housing. National Real Estate Investor’s sentiment survey released last month ranks it, “the most attractive type of commercial real estate investment.” And so do we. At Realty Exchange we have multiple agents who can assist you in navigating this new investment opportunity to help ensure that you choose a property that is right for you.

Over the next few weeks we will explore the top 10 reasons why multi-family investments will continue to be a great investments opportunity in 2022 and beyond.

1. Multifamily Money Is Readily Available.
• Banks are providing more debt capital for apartments which makes getting approved for mortgage loans easier than other types of property. According to the Mortgage Bankers Association’s Annual Report, in 2020 multifamily bank lending grew to $100 billion!
• However, multifamily real estate projects have an even larger source of capital that is not available for office, retail or other commercial real estate projects. Fannie Mae and Freddie Mac are government sponsored enterprises that encourage a liquid loan market; making it easier to buy and sell multi-family properties.
2. Multifamily Loans Carry Less Risk.
• Debt accounts for 60% to 80% of the capital stack in most private equity real estate deals, with investors contributing the remainder. While all types of commercial real estate stand to gain from an extended stretch of low interest rates, multifamily housing has one big advantage from the lenders’ standpoint: Rental income comes from a diversified pool of tenants, which makes multifamily investment lending a lower-risk proposition. Office or retail properties are built around a few anchor tenants, which are not always easy or cost-effective to replace. A loss of rental income can be extended and the cost to re-tenant can be substantial. Multifamily vacancies tracked by CBRE are at their lowest since 2000 and well-occupied properties produce higher cash flows.
3. Apartments Provide a Steady Source of Income.
• The average five year cash flow of multifamily projects in the NCREIF Property Index is 8.58%, an enviable rate for a dividend stock. Of course, most investors will aim for above-average returns; like we do here at Realty Exchange.
4. Rental Demand Remain Strong Even After a Pandemic.
• Multifamily housing has gained a comparative edge in tenant demand. Regardless of the state of the economy, people need a roof over their heads. What’s more, momentum has shifted from condo to apartment development. Homeownership has dropped to record low levels similar to that of the 1970s in the United States according to the reports from the Federal Reserve Bank of St. Louis. Downsizing baby boomers are losing interest in owning, many millennials delayed or abandoned home buying plans, and Generation Z, now coming of age and the largest cohort to ever live, is entering the housing market with rentals first.
5. Apartments Close the Luxury Gap.
• Multifamily housing developers have given families fewer reasons to consider a condo purchase. The quality of apartment construction has risen. New buildings are made more sustainably, with a focus on green space and entertainment options. Designs cater to modern lifestyles, combining technology with a service orientation geared to the customer experience. As a result, apartments now satisfy many of the needs that once drove condominium demand.
6. Multiple Price Points Give You Multiple Options.
• Demand is also strong for older Class B and Class C multifamily housing, such as Origin’s first Orlando, Florida, investment. Owners often seek private equity real estate partners to provide capital for value-add renovations that will justify higher rents. These buildings can be efficiently managed without major renovations, making them profitable investments. Also, communities offer subsidies to landlords who house teachers, police and other median-income tenants.
7. Improvements Unlock Hidden Value.
• Reinvesting in a property through capital improvements and property enhancements can have a nearly immediate payback because then they can command higher rents. Renters are generally willing to pay more if the improvements are of something that they value and receive a benefit from using daily such as appliance upgrades, in-unit smart home technologies such as Nest cameras and thermostats and package locker systems. Many of our own Realty Exchange agents have their own multi-family investment properties, and completing modern upgrades is the first thing they do.
8. Rentals Extend Record of High Returns.
• In successive five-year periods, multifamily properties in the NAREIT index have outperformed other commercial real estate shares. At the same time, the apartment sector has been less volatile than office, industrial or retail investments throughout a quarter-century of returns, proving that multi-family investments is also the safer option in real estate investing.
9. Growth Markets Improve Potential Return.
• Research substantiates Realty Exchange’s philosophy of multifamily investing in smaller, fast-growing markets. In some instances, larger cities that already have a low affordability ratio have less room for appreciation, and returns don’t always reflect the types of risks to which investors are exposed. This approach is echoed in the National Association of Realtors market outlook, which predicts more favorable conditions where apartment rents are affordable and vacancies are low. But Saint Louis is the perfect place to start investing and our agents here at Realty Exchange are extremely knowledgeable and are willing to help you make the right choice when it comes to multi-family investments.