One of the biggest benefits of investing in multi-family (MFR’s) real estate is the promise of a reliable monthly cash flow from rental income. While single-unit properties have only one tenant, MFA’s properties have a plethora of tenants paying multiple rents. In MFR’s investing, the cash is always flowing. Even with vacancies, the remaining units insulate cash flow until the unoccupied units get rented. Further, investors can shield some of the cash flow generated by an income-producing property on their tax returns due to depreciation. Also, private equity real estate investors can access an expanding pool of desirable debt capital at once. That explains why 79% of all MFR’s lending dollars, which reached $900 billion in 2021, according to the Multi-Housing News, went to MFR’s investment projects. Total mortgage borrowing and lending is expected to break $1 trillion for the first time, a 13% increase from 2021’s estimated volume of 900 billion.
☛ Lenders & Multi-Family Investors On The Same Page
Lenders aren’t the only pros looking forward to a productive year for MFR’s funding. Real Estate Investor’s nationwide sentiment is evident by the increase in the steady movement of MFR’s properties. Investors agree that MFR’s investments are the most attractive type of commercial real estate in today’s investing plan. Here are 8 reasons why MFR’s investments will continue to be attractive in 2022 and beyond.
☛8 reasons why multi-family investments will continue to be attractive in 2022
1. Capital Readily Available: Banks and private capital entities are providing more capital for MFR’s investments, which makes qualifying for mortgage loans simpler than any other property type. MFR’s funding grew to $900 billion in 2021. Now throughout 2021, the strong economic conditions and changing migration patterns have pushed the MFR’s sector to record-breaking levels. The economy and multifamily recovery are expected to continue throughout 2022. Even though, Covid-19 is still lingering the MFR’s trend may be persevered despite the staggering 6.8% inflation rate at the end of November 2021. This spark has encouraged government-sponsored agencies to make it easier to invest in MFR’s investments moving into 2022.
2. Carry Less Risk: On average, the loans provided to investors are about 60% to 80% LTV. The risk is shared with the investors covering the remaining 20-40%. While all types of commercial real estate have gained from an extended spell of low-interest rates, inflation will be driving rates up again within the next 12-18 months. Despite that MFR’s housing has a few advantages from a lenders’ standpoint. Here are a few advantages:
a. Diverse Tenants: Rental income comes from a varied pool of tenants, which makes MFR’s investment lending a lower-risk proposition. Also, MFR’s vacancies are at their lowest since 2000 and well-occupied properties traditionally produce higher cash flows.
b. Mix Use Riskier: On the other hand, office or retail properties are built around a few anchor tenants, which are not always easy or cost-effective to replace. A loss of rental income by an anchor tenant can be substantial and the cost to re-tenant can be sizeable. With more than 40% of Americans preferring remote working positions, the office vacancy rates are currently 12.3% only justifies the current shaky turn in the office space market. Similarly, with well over 52.7% of Americans opting to avoid retail shops and preferring online shopping the retail industry is undergoing a massive shift. That uncertainty is causing a 4.9% retail vacancy rate. No doubt Retail and Office have suffered these past few years and are now the riskier choice.
3. Renter Need Remains Strong: MFR’s housing has achieved a comparative advantage in renter demand. This is especially true in areas affected by the covid migration these past few years. Despite the wavering state of the economy, people still need housing. The steady shift from condo to apartment living has increased substantially. Baby boomers are no longer interested in property ownership and are satisfied with renting as an alternative. Millennials still hesitating to buy or opting to suspend the idea of property ownership. Now Generation Z is the largest group of all, and it’s currently entering the national housing market and are unanimously choosing to lease instead of buy. Regardless of the generational differences, renting is the current housing choice for the masses and it’s not changing anytime soon.
4. Stable Income Flow: According to Forbes, markets like Orlando, Fort Lauderdale, Miami, and Jacksonville all have seen property values go up 9%-14%. Rents are following that shift. According to a recent report by Apartment Guide, the average nationwide rent prices have exceeded 10% year-over-year (YOY) for both one- and two-bedroom apartments, as of August 2021. Some markets have seen rental rate increases above 20% or more. But the reality is that places like Miami and Ft Lauderdale have reached rent levels of up to 55.3%. That increase is not limited to these areas, other pockets of favoured markets across the country have seen similar increases. These increases in value are driven by the limited supply of housing in conjunction with the demand in favoured locations. Now on average, the five-year cash flow of MFR’s projects in the NCREIF Property Index is 8.58%, a desirable rate for a dividend stock. A major win for any investor. Of course, most investors will prefer 10-14% above-average returns but 8.58% is a solid number.
5. Diverse Options: The current model of picking up older Class B and Class C MFR housing in class A areas and creating extreme value is the new normal. In these areas that are bubbling with activity, slight modifications can justify higher rents. These buildings can be managed without major renovations, making them lucrative assets. No matter what’s your strategy, there are so many ways to turn an MFR’s property into a gold mine. I have an investor who focuses on buying MFR’s properties in low-income areas and creating massive value. He buys low, does medium rehab, and turns the units into Section 8 apartments. The great thing is that he enjoys Guaranteed monthly payments (up to 75%), annual rent hikes, low vacancy rates, and good profit margins. It’s a win-win situation.
6. Upgrades Unlock Hidden Value: Reinvesting in an investment property through capital improvements and property developments can fuel your rent roll immediately. Tenants are generally willing to shell out more cash if the improvements are of something that’s attractive and value-driven. Things like appliances, cabinets, and flooring can help an investor earn 10-15% more rent. Also, creative amenities like a gym, and laundry room can generate extra cash. I have an investor that has 40-unit MFRs and added a small car wash port and paid parking on an oversized lot. He now enjoys extra income from creative investing. As an investment, the smart value you can add to your MFR’s property will pay off in the long run-in dollars.
7. High Rental Records: In the past five-year period, MFR’s properties in the NAREIT index have outperformed other types of real estate investments. In addition, the apartment sector has been less precarious than its retail, office, and industrial assets in the past 25 years. Generating exceptional, stable, complete, and risk-adjusted-performance across all asset types.
8. Rents Trailing Inflation: Despite certain markets being volatile, the rents are keeping up with inflation. Even with a staggering 6.8% inflation rate at the end of 2021 rents are still keeping up. As mentioned before, some areas are seeing rent increases above 10% and some areas reaching 20%-53%. When wages rise, rents can move north as well, while traditional commercial properties are locked into multiyear leases.
A refi can offer Instant reimbursement. No longer is it necessary for Investors needing to wait until they sell the asset to realize gains. Instead, an investor can refinance, and borrow against the property’s higher value without incurring the taxes on capital gains that come with any sale of an asset. We call it “Milking a property.” like a farmer milking a cow to sell at the market, an investor can extract some of the equity to rehab, build value, or buy another property. MFR’s property owners can refinance as often as they choose during their ownership, collecting tax-free distributions every time and adding to their net worth.
☛Ready to get started Leveraging your Multifamily properties?
These advantages are intrinsic to MFR’s assets. At ROGP Capital we employ additional strategies to further ensure that your MFR’s investments are being leveraged. The best MFR investors know how to find the right properties, accurately estimate costs, and scale their businesses. ROGP Capital offers private funding for qualified investors interested in building their portfolios. Better yet, you can get pre-qualified in less than 24 hrs, with no obligation and no hidden fees.
So, don’t miss out on the next wave of opportunities. Despite the competitive market across the country, savvy investors will be able to plunge into the market and find great deals. Please book a call for a free strategy call. If you are ready to take your investing to the next level, we can help. Let ROGP Capital help you build your portfolio using our private capital resources.