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Multifamily

Economic Outlook for Multifamily Investment Opportunities

Long-Term Success is Still Extremely Viable By Nate Zielinski Over the past two years, the U.S. economy has been like a simmering pot of water that has yet to reach its boiling point. There was a spike in interest rates across the country and inflation began to creep in and be noticeable in daily life for Americans everywhere. A lot of different facets of the economy were affected and real estate investing was no different. Rising interest rates had a domino effect that led to affordability issues for homebuyers and tenants  and even a lack of inventory for investors. However, the market has stabilized, and consumers and investors are now adjusting to the current market and looking to achieve even more success. One of the strategies that is getting the most buzz heading into 2024 and beyond is multifamily property investments. There are mixed signals in the multifamily space currently, but it is always a path to success in the investment industry. Record Setting Supply vs. Diminishing Demand According to RealPage.com, there will be over 1 million new apartment units built throughout the course of 2023 and 2024, the highest level of supply in the U.S. since 1987. Undoubtedly, when these projects began construction, there was the thought that the economy would be a little more stable than it is right now, and this supply would be met with the appropriate demand. The main factor is going to be where the progression of millennials is in regard to owning property. A lot of millennials are moving out of apartments and into single family homes. Whether they are buying or renting, there is the desire to have their own space and privacy, and the apartment life is not as appealing. Also, the next generation, known as Gen Z, is not quite ready to rent as most are still in high school or college. This middle ground between the generations has created a blind spot for apartments, but this will not last forever. There is some speculation from investors due to this supply and demand narrative, but multifamily investing is one of the best ways to exponentially expand wealth. Due to the supply right now, the rental incomes have stalled, so the return-on-investment questions have been raised by investors when deciding to invest in multifamily properties In an article published on FastCompany.com, Lance Lambert states, “This influx has given renters a plethora of options and significantly decelerated rent growth, with outright apartment rent declines in many markets.” Reasons for Optimism While the above statement is true, it needs to be reiterated that with the Gen Z renters coming into the fold in the next few years this issue will not last. Although rents cannot be as high right now due to supply, this can also lead to easily filling every unit for investors due to rent being affordable in these larger apartment style buildings. When demand catches up to supply, investors can begin to charge more for rent year over year, and they can do this with a completely occupied apartment building due to these properties filling up when rents were low. There is obviously some patience that needs to be applied but the payoff is attainable. Also, as stated above, the construction of these multifamily units has hit a 40-year high. Some of the markets seeing the biggest rise in multifamily units include cities such as Nashville and Austin. These two markets have seen a massive spike in population over the past few years and these people are looking for affordable housing options. With rental rates stalling due to the supply, securing a multifamily property in these markets is a huge win for investors. These two cities are expensive to live in, so the potential of increasing rent will be there for investors to cash in on down the line. There is also a bit of a negative connotation for multifamily investment properties right now so the competition in these typically competitive markets may be at the lowest it has been in a long time. Other southern markets that continue to grow include Houston, San Antonio, Dallas and Knoxville, Tennessee. In an excerpt from Forbes magazine, there were some positive signs late in 2023 that displays pushback from the overarching narrative that rent growths are stalling. “Rent growth ticked positive in October 2023, according to Zillow, after falling monthly for more than a year. The slight increase could be seasonal, aberrational or a hint that rent growth might be trending upward. I envision rent growth moderating based on several factors,” writes Michael Zaransky. There is also the elephant that has not left the room yet when it comes to the rise in interest rates that have taken place over the past few years. A lot of potential home buyers have strayed away from purchasing a home as they wait for a decrease in interest rates. Although the preference is a single-family rental for most of this demographic, apartments are also an appealing option because they can typically be cheaper and allow the tenant to save more money before buying a home. There is no denying that most, if not all, would prefer the SFR living arrangement, but it is not always what they can get or afford. The multifamily rental space will still have a sizable presence in the years to come. Final Thoughts for 2024 Of course, there are pros and cons to all investment strategies. There are positive outlooks and negative ones. The multifamily investment strategy in 2024 is no different. There are certainly opportunities across the country where investors can inject themselves into bigger markets and start securing some of these properties. The payoff may not be immediate, but securing these properties to ensure long-term success is still extremely viable and many are forecasting in the next few years that apartments and multifamily properties will be highly sought after by investors and renters alike. Getting ahead of the curve and securing these properties can be a massive

Perspective

Industry Professionals that Can Accelerate Your Investment Career

General Contractors, Property Managers, Real Estate Brokers, Mentors By Nate Zielinski Any savvy investor who has been in the real estate investment space will tell you that it is a hard industry to navigate alone. At the onset of a new investor’s career as well as along the way, there are industry professionals that can offer guidance and bring skill sets to the table that the investor may not have themselves. The onus is on an investor to network, find these relationships, and then develop them over time. There are many facets to real estate investing and it is crucial for investors to open up and accept the help and expertise that is available to them. Some of these professions in the investment industry include general contractors, property managers, real estate brokers, and mentors. General Contractors It is typical for new investors in the real estate investment industry to start with fix-and-flip properties. They are usually easier to find and cost less than a rental property in stable condition that can cash flow instantly. While some renovations are minor in nature and can be handled by the investor themselves, some rehab efforts need to be much more thorough and are simply impossible to do alone. With access to more materials and connections that could save the investor money, general contractors are a must-have to accelerate your investment portfolio. They can complete larger projects such as additions to a house, installing new flooring and carpet, and even expedite painting the interior or exterior of a property. Once an investor has a reliable general contractor, they can be more aggressive when pursuing additional properties. General contractors are happiest when they have a steady flow of work. As an investor scales their business, so too will the general contractor. Once an investor can fully trust a GC to complete their renovation projects, they can expand their business and seek out other investment opportunities outside of the narrow fix and flip scope. Property Managers As an investor maneuvers from fix-and-flip loans to long-term rentals, there will be similar challenges when trying to scale. With most investors being ambitious by nature, they will not want to stop at just one rental property. This is where hiring the right property manager or management company comes into play. Property managers manage tenant rent collection, property maintenance and upkeep and relay any major issues that tenants are having to the investor. This level of assistance and communication can make a huge difference for an investor who is looking to expand their portfolio. An investor can now schedule their day more efficiently knowing they have help with their rental properties. Property managers will also allow investors to take on properties at a nationwide level. Investors are no longer restricted to local investments if they have a trusted property manager. This enables investors to achieve their goal of generational wealth from real estate investment properties. Real Estate Brokers While general contractors and property managers are there to help investors after a property is secured, real estate brokers can help during the transactional phase of the investment. Brokers can sometimes be overlooked by investors, but their impact can be immense, especially for investors who are already established. Think of brokers as your own personal loan processor throughout the life of the loan. Finding experienced brokers that take their profession seriously can be an asset for any real estate investor. They will know where to send certain deals that investors may have depending on the scenario. Some lenders specialize in fix-and-flip or short-term loans while others have stronger long-term rental loan offerings. As an investor, it is a detriment to your business if you spend too much time shopping around for a loan, going over every little detail, and haggling terms with an account executive at a lender. With a broker working with you on every transaction, they can handle the busy work while you focus on finding properties and managing your portfolio wherever you see fit. It is in the broker’s best interest to get an investor the best deal possible to earn more of their business, so an investor should have confidence in partnering up with one. Mentors An investor can accelerate their career by finding a trusted and experienced investor who can serve as a mentor as they break into the industry. Mentors serve many different purposes for up-and-coming investors, but the biggest benefits they offer include instilling confidence in investors and reassuring them through inevitable rough patches. Having a mentor in your corner who has seen just about everything in the industry can make a difference when a new investor hits a low point. Another benefit a mentor can bring to the table is being a partner on the first few deals for brand-new investors. Not only can their expertise put an investor’s mind at ease, but they can also help an investor get better loan terms early on in their career. Due to these partnerships with mentors, investors can qualify for better interest rates, pay less of a down payment and close loans faster. One of the best parts about mentoring is that it is something that can be paid forward. As investors get to a certain point in their career, they can turn around and be a mentor for new investors. This cycle is important in keeping the investor community strong. It is worth reiterating that any investor trying to take on this career path individually is leaving a lot of time and money on the table. Forming a team consisting of one or more of these industry professionals is a step in the right direction for all investors. At the next networking event, trade show, or even the next time you are scrolling on various social media sites, keep an eye out for these types of individuals to help accelerate your investment career.

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