Today’s Market for Multifamily Housing

Lazer Sternhell is the CEO of Signature Realty, a commercial real estate brokerage in New York City.

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As an investor, why would you choose to purchase multifamily properties such as apartment buildings, duplexes, or triplexes? The answer is simple: as an investment vehicle, multifamily properties offer you the trifecta of cash flow from monthly rentals, appreciation, and tax benefits on your investment. 

Multifamily investing has enjoyed a proven track record of success during the last several decades and has recently been trending upward in popularity.
 

The pros and cons of multifamily investments in 2022                                

During 2022, real estate and rental rates appreciated much more rapidly than over the past decade, and that appreciation put multifamily properties in demand. In fact, we saw rent climb 10% in 65 of 150 major cities.  What’s more, these rent increases kept many renters from breaking their leases. According to the National Apartment Association, US occupancy rates rose to 96.5% in 2021, surpassing the previous record high set in 2000. Renters are staying in their apartments longer even though they are paying more. 

Increasing the number of renters means decreasing vacancy rates. Multifamily units are being snapped up by renters as soon as they open up, and this leads to stable income streams for investors. Never before have investors filled multifamily units so easily, and the shortage of multifamily housing, coupled with population growth, indicates that these trends are not likely to change soon. 

Even with the interest rates rising, the prices for homes are still priced high. Renters are putting their dreams of home ownership on the back burner until the bubble bursts or until interest rates come down. Yearly 20% increases for single-family homes mean ownership is not financially wise, and many have chosen to wait out the economy. 

High occupancy and high rents are good news for investors holding multifamily properties. In the short term, investments will be excellent sources of passive monthly income, and over the long haul, they will maintain a strong potential for appreciation, as rising rent prices mean a property’s value only goes up in the eyes of other investors. 

There are still downsides to watch out for as you invest in multifamily properties in today’s uncertain economy. Inflation is partially responsible for increasing rent and home values, but it also drives up operating expenses and the cost of repairs. However, if the cost of materials and labor begins eating into your profits, you can always adjust rents to compensate. 

Increasing interest rates may be driving renters to your door, but they have disadvantages, too. For example, climbing rates might lead to anxiety if you purchased a property with a variable mortgage. Also, as interest rates rise, it becomes more difficult to find bargains in the multifamily market. Great deals are still out there, but you have to hunt for them.

How to get involved in multifamily investing                                               

Investing through a real estate syndication allows you to contribute capital toward multifamily properties and earn returns passively, even if you have no prior experience. Real estate syndication companies handle all the downsides of multifamily investing, such as ‘needy’ tenants, leaky pipes, and six-legged invaders. Jumping into the deep end of multifamily investing is risky if you are unprepared but investing with a syndication lets you get your feet wet without any of the stress.  

Real estate syndication companies also minimize your upfront investment. Prepare to encounter a high barrier of entry when investing in multifamily properties. Large apartment buildings can cost millions, and you’ll need approximately 20% of that cost on hand as a down payment. If you want to get started but don’t have that kind of funding, apartment syndications require far less capital. 

Of course, if you have the time and experience, you can earn more of a return by owning your own multifamily property. But remember to treat that investment as a full-time commitment.

Even with 2022’s volatile real estate market, we still tally up more pros than cons for multifamily investments. The supply of affordable rental properties is limited, so demand for them increases as soaring prices and interest rates squeeze renters out of home ownership and occupancy rates remain strong. This historic demand for rental properties and insufficient supply offers economic advantages to both you and your renters. In short, there has never been a better time to be a landlord of a multifamily property.