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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

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The Easy Times Are Over

How to Give Yourself That Elusive Edge By William Gottfried Tough times for your rental portfolio lately? You may be thinking you should get conservative by hunkering down, reducing headcount, cutting software expenses, and riding out the down cycle. You’re welcome to try that approach, but you just might end up becoming that distressed seller everyone is waiting on. At least for now, the easy times are over in multifamily real estate. In 2023, rents fell 0.7%, marking the second weakest year of rent growth in the last eight years, behind only 2020 and its pandemic-related wackiness. The national vacancy rate has been steadily rising for more than a year, nearly doubling since bottoming out at an all-time low of 3.9% in October 2021. The hottest sunbelt markets and other usual suspects still see the most demand, but rents are flat or falling in 11 of those 12 hottest markets because they are oversupplied with new deliveries. Additionally, today’s interest rate environment limits the multifamily buyer pool and reduces disposition optionality for many sellers. Until recently, multifamily ownership felt like a game of musical chairs and the game was easy. First, take advantage of record-low interest rates to buy basically any deal. Next, label it “Value-Add.” Then, renovate one or two common areas and upgrade 10%-15% of the units. Finally, sell to the next guy with all that coveted “meat left on the bone.” Your buyer would then do the same and on and on it went until rates went up and the music stopped. As an operator, what do you do now? You’re looking at some combination of a limited CapEx budget, no ability to call capital, a looming floating rate refinance, stagnating or negative rent growth, lots of competition, few options to refinance or sell, and investors looking for answers about yield. There will be winners and losers coming out of this reset. The winners will be the ones who innovate and proactively seek an edge while their peers get reactive and cheap, hoping for the best with no real plan. Now that you can no longer count on 5, 10, 15, even 20% rent growth on the other side of your trade-outs, you need to be intentional about reducing variable expenses and squeezing as much yield as possible from your properties. The multifamily market may be deeply challenging, but it is also a time of great opportunity where you can separate yourself from the competition. Five Steps to Stay Afloat and Give Yourself That Elusive Edge 1. Focus on renewals and occupancy Where you used to wait excitedly for leases to turn over so you could capture that new peak market rate, now you need to get defensive. Get units leased and worry about rent bumps next year, even if it is more loss-to-lease than you underwrote. I promise you the two-month vacancy will hurt performance a lot more than slumping trade-outs and raise many more questions with your investors about your fitness to see them through hard times. At the end of the day, 90-93% occupancy can give you breathing room to start focusing on reducing other expenses. 2. Turn units fast When move-outs do happen, make sure you are attacking the turnover process. Waiting to get units ready until they are pre-leased means you’re operating reactively and doing the minimum. How can you test rent rates, finish-outs, concession options, etc. if you never have any rentable inventory to work with? Challenging your property staff and make-ready technicians to turn units quickly also gamifies the turnover process and allows you to pay incentives and rewards to your staff. Finding good people is hard enough but retaining them is even more difficult. Align your incentives and pay the team well when they reduce your vacancy loss. 3. Tighten up your tech stack Separate your “nice-to-haves” from your “need-to-haves.” You must be tech-forward if you want to get ahead as an operator/manager. Eliminate the whiteboards, notepads, and endless Excel trackers that give no real-time data, visibility, or accountability up and down your organization. Focus instead on your OpTech. What is going to cut vacancy loss? How can you truly measure resident satisfaction? What can you utilize to detect leaks in real-time? How can you get data about vendor performance and reduce contract services costs? Question everyone trying to sell you software or trying to renew an existing contract. If they cannot articulate exactly how they increase revenue or decrease those expenses, they’re not a need-to-have. 4. Prioritize customer service No matter how innovative you get or how many AI chatbots you enlist, owning, operating, and managing apartments is still a customer service business. And nothing will sink you faster than bad customer service. When residents have issues, they want to be heard by an actual human being. Do not reduce headcount if it means slower maintenance times, fewer property walks and longer lines outside the management office. Instead, get your team running more efficiently. Getting units ready faster will free up your technicians and managers to do literally anything else such as dealing with those resident concerns, work orders, and keeping the property clean and attractive. And what a great way to juice renewals and resident satisfaction! 5. Work with like-minded partners If you do not think you’re getting any edge from your current property manager, you’re probably right. If you are a management company still using whiteboards and notepads to track turns, you have already fallen behind. If your contractors and subs refuse to use smartphones or even email, then find new ones. Everyone in our industry must change their mindset. It cannot be a cram down from the top. You need smart employees and vendors who are eager to adopt new technology. Like-minded folks are out there, eager for their opportunity to unseat lazy incumbents who have gorged themselves on year-over-year double digit rent bumps who simply cannot adjust to our new reality. Lead from the front on these initiatives. Your staff may have a

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A Good Time to Invest in Multifamily Properties

… And Three Hotspots for the Real Estate Investor to Consider By Erica LaCentra As rising inflation and interest rates persist in 2023, it is understandable that real estate professionals who enjoyed strong performance in the rental market over the last two years are taking a more cautious approach to their investment plans in the coming year. Rental growth is continuing to slow, and investors are likely seeing property cash flow getting squeezed due to higher capital costs. Because of these factors, many investors are shifting their focus from investing in single-family rentals to multifamily properties. Multifamily properties offer numerous benefits, so even in a time when the market is somewhat turbulent, it is easy to see why investors might see the appeal of this asset class. So, let’s get into why it is a good time to invest in multifamily properties, and what markets are particularly attractive for investors. Grow and Diversify Your Portfolio Fast One of the reasons why multifamily properties are so attractive to investors is that multifamily properties add a larger number of units, thereby expanding their portfolios at one time. Rather than having to purchase numerous single-family homes, by purchasing a multifamily property, an investor can reap the benefits of five units or more right off the bat. With multifamily properties, an investor can also expect to have a cheaper cost per unit than they would spend for a single-family home in the same area. This means greater cash flow and a more manageable way to increase consistent revenue and boost net operating income because there are simply more rental units the investor can lease in that singular property. Owning multifamily properties also creates a more diverse real estate portfolio. Having diversity within a portfolio is crucial in times when the economy experiences a downturn, certain property types are struggling or there are vacancy issues. For example, if an investor owns a single-family home and loses their tenant in a down market, it could be a strain on their finances to have to cover the operating costs of the property until they can fill that vacancy. With a multifamily property, even if there is a vacancy in one or more of the units, there is still the cushion of having income from the other leased units. It is not uncommon for larger multifamily properties to still be profitable or at the very least, break-even, with higher vacancy rates. Finally, when it comes to valuing the diversification a multifamily property can bring to a portfolio, there is the fact that multifamily properties have the potential to appreciate significantly over time, often well above appreciation levels of single-family homes, if and when the time arises when an investor may need to sell. In fact, due to the ongoing lack of housing in the U.S., prices of multifamily properties have skyrocketed in markets across the country due to the significant demand. And while single-family homes are more hearkened to market conditions, like comps in the area and the general supply and demand fluctuations that will directly impact resale value, multifamily properties are a bit more insulated. This is because a multifamily building’s inherent value lies in the income it generates. So, in many cases, an investor could force appreciation for a multifamily property by improving operational efficiencies, and increase cash flow for each unit by renovating or improving units and charging higher rents making it a more valuable property overall. All of these factors make multifamily properties highly desirable to investors, especially with current market conditions. So, for investors that are looking to start investing in multifamily properties, it now becomes a matter of knowing where to look for that next opportunity. Promising Markets for Multifamily When researching markets to invest specifically in multifamily properties, investors should be looking at factors such as population growth, job market growth, general demographics that may indicate higher proportions of renters vs. homeowners, property price appreciation, general demand, and occupancy levels. All of these factors can come into play when determining the ultimate success of that property. So, let’s dig into the top three markets that have been identified as hot spots for multifamily investing in 2023 and what makes them so attractive. First up we have Madison, Wisconsin. While it may come as a surprise for some, or even far off the radar, Madison checks many of the boxes that make it an attractive city for multifamily investing. Nestled about 150 miles from Chicago, IL, and 80 miles from Milwaukee, WI, Madison made a strong rebound following the onset of the pandemic and by the fall of 2021 already had unemployment rates back at pre-pandemic levels. Thus, there was an ongoing need for workforce housing and rentals were in high demand as seen in the occupancy rates which stood at 98% as of November 2022. Developer activity remains high in Madison, with close to 8.000 units underway as of December of last year, meaning there is plenty of opportunity for investors to reap the rewards and take advantage of this affordable metro. While Madison saw a 68% year-over-year increase in per-unit prices, it still falls well below the national average of $215k at a per-unit price of just over $139k, meaning there is plenty of room for future growth. This metro will likely come as no surprise to investors, as Dallas-Fort Worth continues to lead the way for multifamily investment opportunities. DFW checks all the boxes for multis as it has been the single best market for total population growth over the past 10 years. This has been driven by ongoing job growth across most major employment sectors as corporations continue to migrate down south to reap a variety of benefits. This continued increase in population spells a greater need for housing which makes multifamily properties a great investment in this metro. And since there is a more diverse employment mix in DFW, the local economy is more likely to be able to withstand market fluctuations because the market is

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Grow Your Business with Additional Revenue Streams

Keep More Revenue in House By Joseph D’Urso All of us in the industry could use more revenue per transaction and many have already began pursuing that goal. A trend in the lending and real estate space over the past few years has been how do we obtain ancillary revenues to our core business and “keep more revenue in house.” Adding new revenue streams is a way to grow your business in a difficult environment where transaction volume is down significantly, and margins and ROI have followed downward. One great way to increase ROI and/or margin is to introduce a tangential but closely related vertical business line. There are some terrific offerings out there that can help industry participants do just that. The post-COVID real estate and mortgage boom of 2020 & 2021 was spectacular with record transaction volumes and margins per transaction. During those boom times, many industry participants held off from adding ancillary business lines and revenue streams and did so with some justification. Specifically, they would ask themselves, “how can I justify taking my eye (and resources) off of the ball and risk execution on the current revenue opportunities I have in front of me today in order to add future revenue opportunities?” However, some of our peers in the industry did both — execute on all the current volume while also adding on additional ancillary services and revenue streams — and they are beginning to reap the benefits today. Prepare for an Improved Third Quarter While we are coming off a difficult 2022, today is a perfect time to reimagine our businesses and consider those future ancillary revenue streams. For those that have the capacity, the resources, and the wherewithal to focus and capitalize on these opportunities, the rewards can be substantial. While we are not yet in a fully stable and well-functioning environment, the signs exist that we may be well on our way there. We can debate the inflation outlook, interest rates and the health of the overall economy, but what most economists and industry participants believe is that we should be in a much better environment by the third or fourth quarter of 2023. Are you ready to take advantage and hit the ground running? Are you adding as much ancillary revenue capability today to boost the profitability of each of your deals while being prepared to benefit in an even bigger way when the markets regain balance and stability? Especially if those ancillary revenues/services also serve to give your customers a better overall experience and make for a more efficient overall transaction? Here are just a few examples: If you are a property investor, some of the most significant fees that you pay in your business are real estate brokerage and title fees. They are part of every real estate purchase. Wouldn’t it make the business a more robust business with better ROI per deal if you were able to recapture at least some of those fees? Wouldn’t it also potentially make the transaction faster or more efficient if you could have better control over those aspects of the transaction? And finally, wouldn’t these ancillary revenues make even more sense to pursue if it were not too difficult to obtain them in a legal and compliant manner? If you are a private capital lender, you are familiar with the cost of valuations and title policies. And while you may pass these costs through to your borrower, they are not insignificant to them. And, if you were able to capture some of these fees, you could be more profitable per loan and have some flexibility in what gets passed through to your borrower and thus be more competitive. You could also potentially shave some time off the lending timeline by having direct insight and input into the valuation and title process. If you could accomplish all those things, why wouldn’t you take some time to evaluate these potential ancillary revenues? In 2019, a Harris Poll commissioned by the National Association of Realtors questioned consumers regarding homebuyer preferences. That poll found several positive, pertinent items in relation to the “One Stop Shopping” model (OSS). Overall, a vast majority of homebuyers would consider an OSS model, and of those that did use an OSS model, homebuyer satisfaction was higher. Also, 79% said that it makes the process more efficient and manageable. While I am not advocating either way regarding the OSS model for real estate, what I do believe is that simplifying the process for ourselves and our customers has some of the very same and clear benefits that the Harris Poll highlighted. It just makes business sense to streamline your business and your customers’ experience by offering some of the ancillary services discussed earlier. A better and more efficient customer experience inevitably leads to better customer retention and a more efficient process also leads to better margins and ROI for your core business. A New Way of Looking at Alternative Investments While we normally think about “alternative investments” in the context of hedge fund and private equity fund investing, shouldn’t we also consider alternative investments in the context of our own businesses? If investing in alternative but closely related revenue streams can enhance our existing businesses in some of the ways articulated above, then don’t we have a fiduciary responsibility to ourselves, our employees, our investors, and our companies to evaluate and consider those? At TitleEase, we have seen our partners and franchisees use this opportunity to increase their revenue and margin per transaction and better control their customer experience while also adding enterprise value to their existing business all with one easy transaction. We believe that the environment we find ourselves in today is an excellent opportunity to re-assess, stabilize, and expand our existing businesses in some relatively easy ways and thus make them better both for today and for the better days to come. Have you considered some “alternative investments” into your business? We think you should. You will be better

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Back to the Basics of Asset Management in a Challenging Market

Three Phases of the Multifamily Investment Life Cycle By Sean Thomson Asset managing multifamily projects is difficult enough in the best of times, but when things go wrong it can become challenging.  There are three major phases of a multifamily investment life cycle: acquisitions, operations, and dispositions. Each phase has its own processes, strategies, and challenges. Within each phase are also a variety of roles that make it all possible. Before diving too far into it, let’s set a foundation. WHAT IS ASSET MANAGEMENT? Asset management is a systematic approach to acquiring, maintaining, and trading real estate for optimum growth potential to maximize the value of the asset while maintaining an acceptable level of risk. It is the middle ground between property management and ownership and the bridge between the investment model and the physical asset. It is also the checks and balances between all the roles and is the pivot point between maximum success and failure.  How is asset management different from ownership or property management? In a typical multifamily syndication the ownership is responsible for deal sourcing, team building and management, and all capital related items. Property management is the daily oversight of the property through onsite operations, repairs, maintenance, security, and upkeep. Each of these roles has a clear focus: ownership is the long term outcomes, asset management is mid-term impact, and property management is short term damage. Phase 1 // ACQUISITIONS This phase is all about discovery and creation. Commonly, this phase is just seen as only the ownership role sourcing deals. While that is a large aspect to this phase, it is so much more. Underwriting This part of the process is solely focused on discovering a deal that meets investment criteria, discovering the opportunity in its acquisition, discovering the risks, and discovering the most effective strategy. In this phase, asset management is trying to find all the possible risks and all the possible opportunities. Where it can get tricky is deciphering which is which. It is far too common for owners to see the risk but not understand how to eliminate, reduce, or manage that risk to create opportunity or on the other hand, seeing the opportunity but not how it could be a problem. The assessment of these risks begins by asking questions:  »         Are these assumptions realistic to the demographics, location, and current operations of this asset?  »         Will the demographics and locations of the asset support the expectations of the investment model?  »         Are these expectations truly feasible?  »         Are the rental comparables accurate and effective?  »         Does this model allow for pivots, setbacks, or pitfalls? Due Diligence Due diligence still heavily relies on discovery, but this part of the process is also where creation begins. The discoveries now can no longer be put in the deal killer category of risks. It is all about planning and strategizing how to mitigate and manage the risks. This discovery includes:  »         Financial audits  »         Rent roll & lease audits  »         Building inspections  »         Market analysis  »         Legal audit  »         Marketing audit As the discovery process happens, creation will start to take form: creation of the mission, vision, and plan for the asset. Each asset needs to have its own mission, vision, and plan that guides the investment model and operations to ultimately reach the targeted goalor exit strategy. Phase 2 // OPERATIONS The money has been wired, the documents have been signed, and the key is in hand. This is where experience takes the lead. Operations is all about mitigation and optimization. In uncertain times and without the proper asset management foundation, this phase can be overwhelming and complex. When markets tighten up and competition for residents intensifies, it is important to focus on lead generating efforts and resident experience. Here are a couple of suggestions: Customer Service Standing out against the competition is a key strategy when times are tough. Why would a prospective resident rent this asset versus all the other options in the market? Customer service could be as simple as ensuring the on-site team is always available and answering the phones or ensuring the website is up to date. A well-thought-out customer service plan could be the difference between a cash-flowing asset and one that struggles to cover expenses. Marketing Analysis Rental revenue is the largest contributor of income in multifamily properties. It is crucial to understand the asset’s resident market and where those people are coming from. The answer to all this is in the marketing strategy. What marketing efforts are driving demand most and which ones are not? Key performance indicators for marketing are the conversion rate and monthly expense amount. Finding the right targets for each of these will keep the asset’s occupancy high and resources needed low. Everyone Needs to be on Board Even if one member of the team is not 100% invested in the project’s goals, big problems are more likely to occur. Everyone from the ownership, all the way down to the subcontractors and onsite property management team, needs to be working toward the same goal. It’s the asset manager’s role to set the tone and be a great leader. Set high expectations using the mission, vision, and plan created during due diligence and monitor progress every week, month, quarter and year. The asset manager is the lynchpin that holds everyone together. The more engaged everyone is, the more optimization potential the property could have and the more willing the team members will be to give input and feedback. Data Driven Numbers do not lie but knowing what to look for and how to read them is critical. Our top four KPI’s (key performance indicators) are:  »         Occupancy/vacancy — This number in combination with unit availability speed can be full of information and optimization possibilities.  »         Delinquencies/collections — The market and tenant circumstances will change so this is a critical metric to watch. Keeping good lease records on the asset’s residents and where they are employed will aid in predicting how

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Multifamily Investments in the Age of the Coronavirus

Despite our current tumultuous economy, opportunities in certain sectors of real estate are still promising. Recession-resilient real estate, including multifamily housing, is a proven asset to any portfolio. Historically, you can see evidence of the strengths in multifamily housing by looking at recent market crashes, including the 2008-2009 Great Recession. As more people lost their homes during that time, the need for apartment rentals dramatically increased. Consumer confidence is another indicator that points to resilience in multifamily housing. A recent Gallup Poll indicates that only 50% of Americans think now is a good time to buy a home. That is an all-time low reading. As fewer Americans feel comfortable buying a home, an increase in the need for multifamily housing increases because shelter is still a basic human need. Due to increased demand, rental prices often increase during both recessions and bull markets. For example, at the height of the most recent bull market in 2019, the average U.S. multifamily rent increased by $2, bringing the total average to $1,472. Cities like Austin, Texas, topped the charts. During recessions, unlike single-family housing, the need for apartment homes typically continues to rise. Relocation Considerations Specifically, in cities like Austin, the need for multifamily properties is driven by corporate relocations. Central Texas will soon be home to a new Apple Mac Pro manufacturing headquarters. The city already hosts existing companies such as Dell, General Motors and YETI. On top of that, there’s a certain lure for other companies to come to Texas. Investors saw that in May 2020, when Tesla announced it was considering moving from California to Texas. This type of volatility increases demand for flexible housing that doesn’t require a long-term commitment. With millions of Americans laid off, or fearing a layoff, the need for short-term housing that allows relocation options is high. Laid-off Americans are expected to be on the move, as they rebuild lives changed by the pandemic. Changing Needs in Unprecedented Times Today’s circumstances call for unprecedented considerations. Stay-safe-at-home orders is driving the need for nicer rental properties. Residents are looking for a nice space to work from home and want a better place to spend their time during the shutdown. Rather than spending disposable income on entertainment, more people may be considering spending extra funds on a nicer place to live, to enjoy amenities and new comforts. Many lifestyles have changed dramatically within just a few months. To gain a competitive advantage, locations and amenities of properties are key. Companies with specific strategies will gain an upper hand and see the most resilience. For example, sparkling renovations at discounted prices in desirable parts of town often drive demand. You can save thousands of dollars without cutting corners by building a strong and loyal relationship with vendors. Quartz countertops, soft-close cabinets and other smart home features are lower-cost amenities and upgrades that can attract an abundance of renters. Producing amenities to ensure the health and safety of residents is another factor to consider in post-pandemic developments. For example, future projects will likely focus on health-specific details such as antimicrobial copper buttons on elevators. The buttons will prevent the spread of viruses because viruses cannot live on copper. Along with that, there is the opportunity to include new filters and UV lighting that would be disruptive to virus growth. Tax Benefits of Multifamily Investing Strategic tax write-offs offer another incentive to invest in multifamily real estate during a down economy. A few of these include maintenance and management costs, insurance premiums, marketing costs and other business expenses, utilities and repairs. One major tax benefit specific to multifamily real estate is the depreciation tax break. Even though the value of a carefully chosen property should only increase within time, the IRS operates on the assumption that properties will depreciate due to the aging process. The IRS deduction covers all properties (structure only, not land) in the U.S. and is based on aging buildings, in order to smooth out eventual capital expenditures needed to maintain buildings. This special tax code is only for real estate owned for income-producing purposes and does not apply to your place of residence. Many financial experts refer to depreciation as a “phantom” expense, because you are not actually writing a check. Instead, the IRS is allowing you to take an annual deduction, whether you are spending any money on the building or not. Also, even though the IRS says the building is depreciating, that’s usually not the case. There is a good chance your property’s value is continuing to increase. No other investment type can provide this unique combination of benefits. Lower Risk Factors If housing prices fall during a recession, multifamily real estate will allow investors to still earn income. In fact, because there are multiple units paying multiple rent, the risk is smaller. Even if some renters vacate or pay late, you are still generating income because it’s not an all-or-nothing proposition. There are ways to handle leasing issues with residents that can result in fewer losses. During the height of the pandemic, some properties saw a record in new leases and very few late rental payments. Property managers attribute this to strategic and transparent communication styles with residents, along with the ability to quickly pivot marketing plans to a changing environment. Overall, in part because of the unique economic challenges and uncertainties surrounding the COVID-19 pandemic, 2020 is the year to consider multifamily real estate investment options. Historically, rates of performance for multifamily real estate are quite strong. For U.S. apartments, the average 10-year rate of return has been a very respectable 6.08%, with 20-year averages even stronger at 9.27%. There’s no reason to believe that will change long-term. There is always a risk with everything in life, but times like these present an opportunity to be bold and to take advantage of opportunities with the potential to increase your revenue for years to come.

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