Multifamily Real Estate Investment Benefits and Trends
Principal Protection
One of the best investments on a risk-adjusted basis (Sharpe Ratio of 1.10) and an extremely low long-term foreclosure (i.e., failure) rate of less than 1%.
Economies of Scale
The scale of a multifamily complex allows for property management, maintenance, security, and office support.
Declining New Construction
As much as 350,000 housing units per year are required to meet national demand.
Declining Home ownership
Ownership has been declining due to various factors and is projected to continue for the foreseeable future.
More Control over Appreciation
Asset values are based on the net operating income and optimizing the income will force appreciation, independent of market conditions.
Evergreen Investment
Housing provides one of the most basic human needs.
Why Multifamily Real Estate?
There are three main factors that have driven the decade long appreciation
in multifamily real estate.
1. Decreasing Homeownership
Increasing rental households due to several factors such as increasing underemployment, stagnating wage growth, increasing consumer debt, changing lifestyle preferences in favor of renting, and tightening of mortgage lending standards.
2. Constrained Supply
It is estimated that construction of 4,600,0000 multifamily units will be needed by 2030 to keep pace with demand. Meeting this demand is being hampered due to factors such as government regulations, zoning requirements, increasing costs, and concentration of new supply.
3. Demographic Shifts
Major demographic shifts are taking place. Increasing U.S. population growth with approximately half of the total population consisting of two groups: Baby Boomers (born between 1946 and 1964) and Millennials (born between 1981 and 1996). Millennnials now comprise the largest share of the U.S. population and labor force. This group is expected to create up to 25 million new households between 2015 and 2025, and have a strong preference in favor of renting. Baby Boomers and Millennials are significant to the demand side because the largest group of renters is those age 20 to 34 and the fastest growing group of renters is those age 55 and older. Also, immigration is expected to account for approximately half of the new population growth in the U.S. Immigrants have historically shown a much higher likelihood to rent than own and to do so for longer periods of time.
Projected Total U.S. Population - 2020 to 2060
Source: U.S. Census Bureau, 2017 National Population Projections
Projected U.S. Population of Predominant Renter Age Groups - 2020 to 2060
Source: U.S. Census Bureau, 2017 National Population Projections
The constrained supply and growing demand for multifamily may take one or more decades to balance out as it requires almost 350,000 units per year. The increase in rental households due to factors such as underemployment and stagnant wage growth means that a sizable portion of the demand is for workforce housing units that serve moderate and low-income households.
To learn more details of the multifamily real estate drivers and 2020 investing outlook, please
