Multifamily has been the Darling of Commercial Real Estate for the past several years.
In 2012, the JOBS Act enabled more people to access crowdfunding investments, like commercial real estate syndications. Something previously reserved for the ultra-wealthy and institutional investors.
In addition to more access to opportunities, investors capitalized on the high demand for apartment complexes and record levels of appreciation and rent growth for nearly a decade.
Both syndicators and investors made bank as double-digit returns became the norm.
Then the pandemic hit. Pent-up spending and supply chain issues lead to rapid inflation in 2021 and 2022. Followed by interest rate increases that more than doubled the cost of borrowing.
Today, news reports proclaim that a multifamily housing crash is imminent.
But is multifamily through? Will the industry really collapse? Or is it just the headlines news outlets use to draw in readers?
Is Multifamily Investing Still Safe
Despite these temporary challenges, multifamily real estate can still be a safe investment.
Real estate is regional by nature. So, what happens in one market does not reflect every region. That means national averages and trends will not describe every real estate market in the US.
When you look regionally, even amid today’s high-interest rate environment, not all areas are seeing declines.
According to Yardi Matrix, Tampa, Maimi, and Charlotte expect strong rent growth. Across the south, June numbers showed Miami rent rates increasing by 19.5% year over year, whereas in Scottsdale, AZ, rates rose 9.2% over the same period.
On the other hand, Portland, Las Vegas, and Fresno saw rents fall by as much as 11% year-over-year.
In the right region, multifamily real estate continues to offer valuable benefits and safe returns for investors.
A few of the most valuable benefits of multifamily real estate include:
- Cash flow
- Tax benefits
- Hedge against inflation
- Steady demand
- Leveraged debt
- Lower volatility than the stock market
Along with these benefits, here are a few reasons why NOW is still a good time to invest in multifamily:
- Existing housing shortage: The National Multifamily Housing Council estimates that the US will have a shortage of 4.3 million units through 2035.
- Lower homeownership rates: Due to rising home prices and high-interest rates, potential homebuyers must wait longer and save more to buy their first home. While they wait, most of these consumers rent apartments.
- Slowed construction starts. Rising rates, supply chain issues, and recession fears have discouraged new housing construction projects. Anytime housing starts slow, it affects the market for years to come.
- Migration trends. The regional nature of real estate makes migration trends significant to any multifamily investment. While some areas are seeing population declines, others have a positive influx of new families that continues to drive demand for apartment housing. The states with the highest positive net migration in 2022 are Florida, Texas, and the Carolinas. In contrast, the states with the highest rates of move-outs include California, New York, and Illinois. Positive net migration patterns can exasperate existing housing shortages and drive multifamily demand (and profits).
- Stalled appreciation produces opportunities to buy at favorable prices. Lower sales prices with sustained rents can create positive cash flow immediately.
Working with an experienced team who understands the market and how to recognize the best deals brings ongoing success. To learn more about how McKee Capital Group vets properties and completes due diligence to hold down investor risk, watch our introductory video.
