Why Multi-Family Investing?
Multifamily investments are historically the most stable of all commercial real estate classes. Long-term demographic trends and an ever-increasing “renter culture,” makes apartment investing a viable wealth creation engine for the next 20-30 years.
Rent Is On The Rise
As pictured in the graph to the left, rent has consistently risen, independent of median renter income. This means your rental income is protected from recession and other market forces. Investors in multifamily housing have seen steady growth in their properties and all signs point to continued success. Developers and builders are responding to a rising demand not just from young adults but also from the larger population of Americans who do not have the means or the desire to buy a house. Construction of multifamily units is at its highest level in 25 years according to Joint Center for Housing Studies at Harvard. But even with multifamily construction at its highest level in two decades, additions to the rental supply have not kept pace with swelling demand. As a result, rents have climbed across the board.
Fewer Buyers, More Renters
The past 15 years has shown a steady increase of renters while home ownership has been on the decline. There are myriad reasons for this but the end result is there has never been a better time to invest in rental properties. The surge in rental demand that began in 2005 is broad-based and includes several types of households that traditionally prefer home ownership—in particular, older adults, families with children, and high-income households. These changes reflect a number of factors, including the fallout from the mortgage foreclosure crisis as well as larger demographic shifts, particularly the aging of the US population.
Commercial multifamily real estate follows populations cycles and not economic cycles. As such, an investment in apartments offers significant economic cycle protection to your portfolio. To underscore this point, the National Council of Real Estate Investment Fiduciaries (NCREIF) looked at the 20 worst quarters for paper assets from 1978 to 2012. Despite the sharp downturn for paper assets, real estate was up 17 out of those 20 quarters. Given this lack of correlation with the stock market, it should come as no surprise that when the market tumbled in 2008, apartment investors were making money. Additionally, commercial multifamily real estate happens to be a low volatility investment. Simply put, low volatility means that “up” years vastly outnumber “down” years.