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April 20, 2017

Before we begin, let’s define what exactly multi-family housing refers to in the real estate industry. We are looking at multiple residential units, situated either in a single building or many buildings, as a part of a larger complex.

Multi-family residential housing projects in the US continue to show signs of exponential growth. This growth should continue for years to come driven by a range of macroeconomic factors, including supply constraint and rising demand. Let’s discuss why the current state of affairs remains bright for real estate investors looking to possibly make lucrative net returns on multi-family investments.

Plenty of Jobs, Yet Barrier to Home Ownership & Growing Rental Demand

The healthy job market with low figures of unemployment has led to an increase in the amount of home buyers. However, on the whole, home ownership is slipping and renting is on the rise. There is a significant barrier to home ownership, with heavy constraints on the supply, which has led to higher prices of homes over the past few years. This surge in demand has led to a new heightened level of multi-family-unit construction aimed at the renters’ market.

Changing Demographics Led by the Millennials Who Favor Renting

The spike in demand for multi-family residential apartments and condominiums is stimulated by the change in demographics.  Leading the surge are the millennials, the upbeat generation born between 1982-2004. Millennials are not making any more money than previous generations and have even less purchasing power than their predecessors due to inflation. These millennials are interested in  entering the market as first-time home owners, alongside the baby boomer generation, who are looking to retire to new homes or downsize to more affordable housing.

There is also greater demand for multi-residential housing projects for students and young renters, with a growing preference for rental due to increased housing prices. The interesting trend with millennials is that they will rent for a larger part of their lives in comparison to the generations before them. According to Federal Reserve statistics, home ownership today in the United States is almost at a 50 year low of -63%, with the share of first-time home owners standing at a 28-year slump. Furthermore, PWC’s Emerging Trends in Real Estate 2016 Research Report states:

“As the market sorts itself out, a reasonable expectation is for the homeownership rate to settle in a narrow range around its 50-year average of 65 percent. In the short run, that means the advantage remains with investors and developers in the rental housing sector.”

The NASDAQ-traded firm JLL accounted for over 300,000 new multi-family units, which were completed in 2015, amounting to the largest post-recession growth of the multi-family rental market. In addition, the average home vacancy has dropped to 47 days, with multi-family vacancy below 5% for the last four years running. The research company Fitch forecasts that vacancies in student housing across the board will reach the 2% threshold next year. We are witnessing a trend where the vacancy rates ought to remain low and where, over time, rents will continue to increase across the majority of markets. Furthermore, we are seeing figures that the Sunbelt markets are above par, taking the lead on absorption as well as rent growth indicators.

So Is It an Investor’s Market?

Looking from an investment perspective, it seems relevant to jump on the bandwagon, as multi-family investment sales surged 8.6% in the first quarter of 2016, in comparison to the same period last year, according to JLL’s Q1 Multi-family Investment Outlook Report. The report also mentions private equity’s stakes in the game as a driving force behind this $35.4 billion overall market investment.

In line with the viewpoint of Freddie Mac, we are bound to see the multi-family market moving forward, backed by the steady economy and other key drivers.

Excerpt from Freddie Mac’s Multi-Family Outlook 2016 report.

“Favorable demographic trends and an improving economy will generate robust demand for multi-family properties. Even if the economy experiences extended low oil prices or slow near-term growth over the next year, most multi-family markets will continue to perform above average.”

Both Freddie Mac and Fannie Mae experienced excellent first quarters in 2016, with a whopping $12.6 billion in lending, specifically for multi-family. This is a significant 21% increase over the previous year. These transaction figures provide us with further confirmation that the multi-family market is strong and kicking.

To conclude, as far as multi-family property investment goes, 2016 should be another great year for those looking to focus their investments on long-term assured gains. The sustained high-rental occupancy rates of 96% (figure from the YARDI Matrix) across the United States do not look on the verge of plummeting any time soon.

iintoo helps with funding multi-family projects. Some of our investments involve purchasing, adding value and reselling of multi-family properties. As always, we scrutinize the deal before we partner with the entrepreneur. Our due diligence process includes examining the market, past and present situations, its resilience during times of crisis, and so forth. We raise the money only when we believe that the investment has good prospects and minimal risk. Investing through iintoo allows you to avoid dealing with the many facets (and possible pitfalls) of property investment alone.

Are you interested in exploring some of our investments? Join us today for additional information.