Why Multifamily in 2016

Multifamily properties are a great asset class

Once you start counting the benefits of multifamily properties, it becomes pretty clear why many steer their money into these investment.

Economies of Scale (Consolidated costs): All of your costs, including maintenance and repairs, landscaping, waste removal and cleaning, are lower on a per-unit basis compared to single-family properties. Having shared common areas and expenses helps efficiently consolidate costs. Professional management of apartments also typically costs less, allowing owners to concentrate on other things.

Less risk: One tenant moving out of a 10-unit complex is going to hurt a lot less than one tenant moving out of a single-family property. It costs less money and takes less time to replace an apartment tenant. The market for renters looking for apartments is also much larger than that of renters looking for houses. Apartments historically do well no matter if we are in a strong market or a downturn; people always need an affordable place to live. They are also a more attractive asset class for buyers when it comes time to sell.

More value-add opportunity:Apartment property value is not as dependent on market comparables as values of single-family properties. The value will be based more on a multiple of the net income for the property, which owners control for the most part. Increasing rents to market, finding savings on expenses, adding new amenities and making property improvements are all steps that will improve cash flow and the property’s value.

Lending: With the strong rental market and consistent demand for investment properties, there are a lot of capital sources available that can offer competitive financing for new acquisitions. Just like any loan each commercial loan request will have its own unique challenges and complexities, but there are a few common takeaways on what will be different compared to single-family lending.

I want to give credit to Colin Dubel for his article about Multifamily which lead me to making this blog post. I appreciate all comments and if anyone wants to chat more about each of these points. I will go into more detail in each of my next blog post about lending or if anyone has specific questions please don’t hesitate to reach out directly.