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EL SEGUNDO, CA—The case for multifamily investment is obvious. To name a few reasons, occupancy rates are high, vacancy rates are in the 5% range or lower and renewal rates are running at record levels of 53.2%, according to RealPage data.
But there are other, less-mentioned drivers that also deserve to be spotlighted, says David Harrington, executive vice president and national director for the multifamily advisors division of Matthews Real Estate Investment Services.
“Wealth preservation, adding value and favorable debt/leverage are the main reasons why investors finds the multifamily asset class so compelling,” he tells GlobeSt.com.
Housing is a necessity and much of the country has experienced a vast under-supply of apartments.
“While anyone could make a bad investment, a typical multifamily property, when not over leveraged, provides a safe haven for capital over the long-term. Strong demand from investors in this space along with demand from the tenant base are cornerstones to value and preserving wealth,” says Harrington.
While multifamily is certainly subject to market forces beyond an individual investor’s control, this product type allows an owner to take an active role in adding value to a property, which will lead to increased returns and greater value appreciation over time. A desire to affect positive change in the outcome of an investment, as a trait, will draw investors toward multifamily, Harrington says.
Favorable Debt /Leverage
The current lending environment for multifamily assets is rich with a multitude of options for investors.
“This creates the ability for an investor to utilize other peoples money in the building of a portfolio,” explains Harrington. “A consistent fact is that multifamily will receive the most favorable treatment of all asset classes with the lowest interest rates and longest amortization periods.”
Overall, the high financial barriers to entry for homeownership continues to benefit players in the multifamily market as debt-burdened, early-career young adults struggle to stay abreast with current bills as well as save for home down-payments.
Looking ahead, apartment developers will need to add approximately 325,000 new units each year until 2030, according to the National Apartment Association and The National Multifamily Housing Council. As a result, investors are and will continue to inject funds into multifamily assets to yield successful return on investments.