Thriving in Multifamily Real Estate: Insights and Expertise
The multifamily market has experienced a period of exponential growth in recent decades. With growing demand from potential investors, homebuyers, and tenants, as well as new regulations passed to bolster affordable rental housing, it's safe to say that the rental demand for multifamily housing is high.
Additionally, with the population growth and standard of living in recent decades, many people are choosing to move into multifamily units instead of old apartments because there are no construction delays, and these properties are available in excellent locations.
This article explores all you need to know about multifamily properties, an introduction to multifamily investment and what to look out for when investing in the multifamily housing market. You'll also learn about the best multi family real estate markets and frequently asked questions about multifamily investment markets.
What Are Multifamily Properties?
Multifamily properties are any residential building consisting of multiple residential units. Townhouses, condos, duplexes, and apartment complexes are everyday examples of multifamily units. Whatever home you imagine includes various segments in the same building, even if the landlord resides there, is an example of a multifamily property.
For instance, if you reside in one section of a duplex and your colleague resides in the other, you all live in a multifamily property. Contrary to general perception, multifamily real estate is only partially new. Until the 19th century, many people lived under the same roof, but it wasn't the purpose-built multifamily properties we know today.
By the 19th century, many people were forced into cities during accelerated urbanization in the United States. As a result, this created a high demand for relatively low cost housing, which meant densely populated housing developments such as flats.
Potential investors can find excellent investment opportunities in multifamily property. Some investors try out one of their multifamily units by residing in it, known as owner-occupied rental properties. No matter how you invest in the multifamily sector, this investment can be a fantastic way to grow wealth.
An Introduction to Multifamily Investment
The multi family market is a broad term for the residential real estate market that includes both apartments for rent and sale. The multifamily building industry is one of the earliest and most common property investment schemes.
As one of the biggest real estate segments, with over 610 million people living in flats, this investment market is large and diverse. In the United States alone, this asset class includes more than 175 million homes and 810,000 apartment buildings. With such high demand and population growth, this investment market has been predicted to expand exponentially.
Whether you are a potential investor, homebuyer or renter, the multifamily sector offers numerous advantages over other real estate forms. Multifamily assets will likely remain one of the thriving assets in the future. Furthermore, according to an article by New World Economics, multifamily properties are expected to grow to more than a third of all real estate investment in the United States by 2050.
What to Look for When Investing in the Multi Family Housing Market
Buying the occasional real estate property on a Saturday evening is okay, but multifamily investing takes more than perusing open houses. Investors should always endeavour to conduct multifamily market analysis; This includes finding below-market properties and examining the property's financial sensitivity. For those looking to become a multi family investor, the search begins with the following:
The Location
Location is essential for investors who want to invest in multifamily investment deals. In most cases, the most preferred criterion for renters is location. When investing in multifamily housing, investors should look for areas with the highest rent growth, fruitful areas where properties are in strong demand and regions with great landscaping.
Total Number of Rooms per Unit
The next step is the appraisal of the property. Multifamily investors should contemplate the number of units in the building, including the number of rooms per unit. First-time investors should start their property search by looking at three types of apartment buildings. These units include duplexes, triplex, and fourplexes. These properties offer first-time investors an advantage with minimal risk and are often quite affordable.
Potential Income
The next step is to find out the income that the property can bring. Sites like Rentometer.com or Craigslist are valuable resources for determining real estate prices and earnings, but investors should carry out personal research with all things considered. The fifty percent rule is an overall recommendation for those who wish to remain conservative.
You should spend 50% of your investment revenue on expenditures, not mortgages. While this may sound like a modest strategy, it is a good base for new investors.
The Seller
Another question to consider when evaluating a potential multifamily property is who's the seller? Real estate prices can differ enormously depending on the seller and their motives. Hence, investors must understand who they are dealing with. Bank-owned properties are treated differently from properties sold by the owner, which means there is a possibility for reduced expenses.
The Best Multifamily Real Estate Markets
If you are considering Multifamily investment properties, you may wonder which are the best states to buy multi family properties. To help you decide, we've assembled a list of the top markets to purchase multifamily properties based on interest rates, recent real estate trends and data from the Crexi platform.
These cities incorporate solid economic fundamentals, population growth and favorable conditions for real estate investment, making them an ideal choice.
1. Austin, Texas
Austin has attracted several technology companies to the area, creating an immense-tech cluster called "Silicon Hills". The technology conglomerate comprises companies like Apple, Samsung, Tesla, and Oracle.
Austin's technology sector varies from other seaside counterparts mainly because of the market's lofty focus on immense-tech research advancement and manufacturing jobs. Notably, immense-tech manufacturing is less volatile and better for the economy in the long run than other tech jobs.
2. Raleigh, Durham
Raleigh is the capital of North Carolina, and Durham is one of the biggest cities in the state. Raleigh's population growth has doubled in recent years due to a strong job market and economy. The population is growing at 2.3% annually, and employment growth is about 2.6% over the same period.
Following the Bureau of Labor Statistics, Raleigh has a conventionally low unemployment rate. The average rent for properties in Raleigh is over $1,500 per month, and nearly 50% of the multifamily units are occupied by renters.
3. Nashville, Tennessee
Nashville is situated in the south of the United States and is the capital of the state of Tennessee. The Nashville municipal area is one of the thriving cities in the United States. The city is known for its music and entertainment industries and is famous for its education and health sectors.
Population and employment rates are essential indicators of growth, both of which increased by about 2% year-on-year. This growth created housing demand for real estate, particularly in Nashville's multifamily market.
4. West Palm Beach, Florida
West Palm Beach is a city situated in Florida. The town is on Florida's east coast, about 65 miles north of Fort Lauderdale and 95 miles south of Orlando. The city is a famous tourist attraction because of its closeness to the Everglades and several beaches. West Palm Beach has also seen increased immigration recently thanks to its pleasant climate, business-friendly government, and lack of state income tax.
With increasing jobs and population growth, West Palm Beach is one of the ideal cities to invest in multifamily properties. Palm Beach properties for sale provide an excellent opportunity for multifamily investors and developers to take advantage of urban development. Rent is up 13% over the past year to nearly $2,300 a month for a two-bedroom unit.
5. Dallas, Texas
Dallas has a diverse range of business environments and economies, so investing in residential units here is profitable. Every day, more than 340 people move to Dallas from several locations, and these migrants are looking for affordable housing, which Dallas has to offer.
However, there have been rising interest rates for rental properties for the past four years. As a result, housing demand is high, and the city is a thriving market for investing in multifamily assets. You can make money renting here. As many as 20,000 new homes and apartments are expected to appear in the Dallas metro area soon.
6. Salt Lake City, Utah
Salt Lake City has witnessed significant growth in its multifamily fundamentals in recent years, driven by sturdy population growth and low business taxes. As a result, many have predicted this city moving from a third-level multifamily market into a developing secondary market.
Rents in this city have risen 14.5% in recent times and according to the Yardi Matrix, even though annual rent growth in the country is less than double digits. If development activity remains elevated this year, this could lead to lower occupancy rates, which could also put declining pressure on rents.
7. San Diego
San Diego has the second-highest rent growth. Its rental market is supported by a biotechnology enterprise and a strong job market, supported by a large military force of more than 139,000 military personnel.
With one of the country's largest biotech industries, you have a high-paying job allowing its employees to buy apartments at any price; This is often the driving force behind commercial leasing.
8. Atlanta, Georgia
Atlanta's strength as a multi family housing market lies largely in its demographics, with the highest percentage of "elementary renters" out of the metropolitan areas we covered. The youth population in Atlanta is large and growing in percentage and absolute terms. In the previous year alone, Atlanta increased in population by 2.3%.
Looking into the future, we expect this demographic trend to continue, at least in the short term, meaning that young workers will continue to start up households, which will drive up rental demand.
Conclusion
Market research can make or break your real estate investment, and this is why it is essential that you approach it with a clear set of criteria and goals. Either way, implementing the tips outlined here should help you find the best multifamily markets and start investing in real estate.
If you need more information, are looking for a suitable market to invest in, or would like to talk in more detail about the multifamily investment markets in the real estate world, contact us today at Icons of Real Estate, and we will provide you with additional information.
Frequently Asked Questions About Multifamily Investment Markets
Compared to other forms of investment, such as commercial real estate, multifamily buildings can offer a more stable income, lower risk, easier expansion and the ability to provide affordable rental housing to local communities whether or not multifamily properties are suitable for you as an investment depends on several factors, such as your risk tolerance, experience, and ability to access many markets.
Many commercial trends affect investments on a micro and macro level that are beyond your control. Generational change, global and market economies, location and availability of real estate are some fairly familiar trends that can change your investment outlook.
For instance, when baby boomers retire, a frequent move is to cut down properties in the North to retirement homes in the South; This frequently means that the older generation is less interested in holding on to the property, which lowers the value of a Class A property and creates a profitable investment.
Banks are primarily interested in resale value; they will look at similar properties in the same area and consider what price they can attract and flexibility in a particular market. They also look at how affordable the property is. In this case, the rental income you expect to earn compared to your projected costs.
In a single-family property, an investor requires only one renter to be fully occupied. In contrast, that investor must find and retain several renters to fill a multi family building. Let's look at the other side of this.
For single-family homes, if the renter decides to relocate, the building immediately goes from entirely occupied to entirely vacant; This means that the profit from the property will drop to nothing and remain at that level until the owner finds a new occupant.
On the other hand, multifamily homes has the advantage of having income from multiple renters, which can be considered more reliable because even if one renter relocates, the property still receives income from other renters. At the same time, the owner tries to fill the vacant unit.