Multifamily investing news

Investing in Washington D. The D. Because of rising home prices, younger people are opting to rent rather than buy, which is good news for Washington DC real estate investors. Now, those renters have returned to the D. Most of those renters are Gen Z adults and high-earning Millennials. Monthly apartment rent prices in D.

The average cost of rent in the area is still lower than it was a year ago, which has helped to revive rental activity. The theory behind the increase of renters leaving downtown areas is that with the ability to work from home, there was no longer a need to pay the high cost of living to reside in these areas. In large cities across the country, the pandemic caused an explosion in rental vacancies.

Now that people are moving back to city centers, rental vacancies are down, and rental prices are going back up. For example, occupancy in D. Apartment List also shows that the average monthly rent in D. This is all good news for real estate investors. Despite increases in rent prices, individuals and families alike are returning to the city once again and signing apartment leases, which creates income for multifamily property investors who own those buildings. August data from the U. Bureau of Labor Stat ist ics shows that D.

Additionally, data from the U. The District of Columbia is surrounded by some of the largest and most popular cities in Maryland and Northern Virginia, which has helped spur growth in D. Northern Virginia has also seen positive job growth. In the past year, D. And those jobs are attracting people to the region.

The city is ranked as the 3rd best city for young professionals , the 5th best city to live in, and the 8th best market for real estate. But as we cross the midpoint of , the U. Rumblings of an imminent recession grow louder by the day. Fear is contagious, and some markets are already showing signs of hunkering down in anticipation of a downturn. The expectation of recession, let alone the materialization of it, impacts even the strongest of markets, including multifamily assets in Texas.

Investors and brokers who specialize in the property type recognize that certain factors — net in-migration of hundreds of thousands of people per year, exceptional corporate relocation activity, and supply chain disruption that limits the new supply coming out of the ground — can still buoy the appeal of the asset class. But with the economy clearly slowing and lacking in future directional clarity, prices of these assets are in for a period of adjustment.

But sources agree that the day period between mid-March and mid-June was marked by change. The observable adjustments in the market include an expanding bid-ask spread, a shift in the preferred type of debt for new acquisitions and a retooling of entry and exit strategies by a variety of investment firms. Fueled by outsized rent growth that was playing catch-up after essentially being frozen during the first year of the COVID pandemic, valuations skyrocketed throughout the space.

But as the Year [Treasury yield] increased and subsequently the cost of debt increased, we hit an inflection point in late April, and buyers started to get priced out. Investors typically flock to this security when skeptical about the long-term health of the economy, which traditionally causes the yield to compress.

But in the current climate, severe inflation is causing the prices of new bonds that are sold to remain high, thus ensuring that the yield that investors require at those prices continues to appreciate. How We Got Here As for rent growth that contributed to inflated valuations late last year and early this year, the average asking multifamily rent in Dallas-Fort Worth increased by Austin also finished the first quarter with double-digit year-over-year rent growth and a healthy occupancy rate.

Sources say that even with strong in-migration and stunted supplies of new construction, rent growth of that magnitude was likely not sustainable. Older assets in secondary locations have likely seen 15 percent reductions in price relative to to days ago. S capital markets. A return to such harmonious market circumstances would also better allow the fundamentals of Texas multifamily markets to play out organically, ensuring that more deals get done.

Multifamily investors and brokers cite lease trade-outs — the difference between the rents paid by a new resident and the previous one — as a bullish indicator for the revenue side of the equation. Jones says that in Austin, owners are typically seeing lease trade-outs of 15 to 20 percent and increases of 10 to 15 percent on renewals. In that particular market, deals on new construction are still being underwritten with double-digit rent growth for the first year or two — a far cry from the historical base range of 3 to 5 percent.

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In the wake of continued interest rate hikes from The Fed, and general economic downturn, rents have seen declines in some markets. Furthermore, multifamily deals are facing challenges with higher interest rates changing the debt landscape. Still, there are a number of markets showing compelling multifamily sales volume, and the need for housing remains strong across the US.

Industry Apartment demand goes negative for the first time in Q3 Multifamily Dive Jay Parsons, vice president, head of economics and industry principals for RealPage, attributes the drop in demand to the effects of inflation, rising rates and low consumer confidence. Given market changes, we forecast a significant slowdown for the second half of the year—driven by rising interest rates and capitalization rates and uncertainty among buyers, sellers, and other stakeholders about where market values may lie.

This strategy is based on the owner-occupied property model, where investors live on the property that they rent out to one or multiple tenants. Owners can occupy commercial apartment buildings, condo complexes or even rent out the second half of their duplex to participate in house hacking.

Tips for Investing in Multifamily Real Estate Like any investment, multifamily properties require careful consideration and a detailed understanding of the market you are trying to buy into. Consider the following tips while scoping out your multifamily investing opportunities. Begin to understand your market via location scouting. Prepare for competitive gateway markets. Desirable urban areas like New York City are known as gateway markets.

Keep the competition in mind while scouting for these highly sought-after units. Be prepared for a high initial investment. Unlike a single-family home, commercial multifamily units require investors to purchase a building capable of housing multiple tenants.

Although the initial investment is high, you have the opportunity to potentially profit from multiple streams of income, which can be used to make mortgage payments or fuel other cash flow investments. Conduct a thorough investment analysis. Conduct a thorough investigation into the market you are considering purchasing in.

Predict possible expenses, management fees and rental income. Work with a trusted real estate investment advisor to make sure you calculate accurate returns. Prioritize dynamic opportunities like value-add properties and house hacking configurations. Undervalued properties that could benefit from added amenities like a fitness center or dog park can be purchased at a discount and charge higher rent prices after renovations.

Owner-occupied properties can benefit from house hacking as a way to reduce mortgage payments. For a less hands-on approach to multifamily investing, consider investing with a crowdfunding platform. Crowdfunding gives you the freedom to passively invest in multiple multifamily properties, rather than placing all of your capital into one investment property.

The Bottom Line The unique characteristics of multifamily units, like the ability to produce multiple streams of rental income from one property, make it one of the most viable ways to hedge against inflation and create a strong investment portfolio. Private portfolio additions can potentially balance your investments during times of economic downturns.