Multifamily Landlords Have Pricing Power
Posted by Peter Vekselman Wednesday, 11 July 2012 06:03 No Comments
According to the National Multi Housing Council, apartment rents are up between four and half and five percent across the country. Vacancy rates are down to five point one percent. A tremendous improvement over the fifteen percent vacancy rates from 2009.
You would think that means a boom in new construction of multifamily housing but you’d be wrong. At the bottom, new construction dropped to about a hundred thousand new starts per year. Over the past decade, new development has averaged about three hundred thousand per year. Today, there is some improvement but it is still considered low at about two hundred thousand. Experts believe that is between one hundred to one hundred and fifty thousand starts below market demand.
The young adult demographic is expected to maintain an upward demand for more multifamily housing. The only experience this generation has with the job market and real estate market is the Great Recession. They witnessed the foreclosure melt down and are in no hurry to add a mortgage to the student debt they are struggling to repay. Additionally, this generation shows a strong desire to maintain more mobility, that renting enables, than any generation before them.
Freddie Mac reports that multifamily property values fell forty percent during the recession but have recovered twenty-five percent over the past two and a half years – easily out performing all other market sectors. With a national cap rate of six and a half percent, these properties are at full market value and probably a little over valued.
One of the two most probable investment strategies is buying at market value with the hope that rents will continue on the current upward trajectory to improve return on investment. Investing on hope is not a solid strategy.
A better strategy is researching the rehab market. Buying a poorly maintained multifamily at a deep discount and at a great location. This strategy requires the investor to be able to bring the property back up to full value and increase rents back to market value over the long term.
A third investment strategy is facing the fact that the best multifamily investment opportunities have pasted and looking into other market sectors. If you want to learn more about the best current investing opportunities, please contact me today.
All the Best,
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