As economic conditions continue to rebound from the pandemic-induced slump, now is the perfect time to evaluate the multi-family market and anticipate the upcoming trends that are likely to materialize in the near future. While the multi-family sector has proven largely resilient despite the turbulent economy, there are still a few issues that real estate professionals need to keep tabs on to ensure they are making sound investment decisions.
The main issue over the past year impacting the multi-family market was the large-scale mandatory eviction moratorium, which effectively precluded landlords and property owners across the nation from collecting past-due rents. Still, the controversial legislation assisted tenants who were struggling to meet their rental payments as a result of unemployment precipitated by lockdown protocol. Without the forced eviction stoppages, the multifamily market would have experienced unprecedented vacancy rates, falling rents and reduced overall return on investment for owners. In spite of this complicating factor, the overall market dynamics are still robust with demand skyrocketing and median rents rising in virtually every major metropolitan area in the country.
In addition to the eviction ban, COVID-19 effected the multifamily in a number of other significant aspects as well. One of the most notable resultant trends was the dramatic rise in rents. Statistics compiled by the National Apartment Association indicate that rents have risen by an astonishing 39% over the entire United States in the past ten years—which is a testament to the ongoing strength of the market and its reliability to produce consistent returns in spite of external factors like the pandemic.
Another key development linked to the pandemic pertains to tenant expectations. With the advent of teleworking employment options—a trend greatly expedited by COVID-19—individuals are spending significantly more time in their residence and subsequently are demanding housing options that offer more square footage and premium amenities. This market shift has prompted many former urban renters to move away from the city to suburban areas where they can get more bang for their buck in terms of space and top-tier amenities. This mass exodus has led to a rise in multi-family development projects breaking ground in suburban areas that in the past were largely dominated by single-family residences. The rising number of people seeking rental properties could usher in a new era of gentrification, neighborhood revitalization initiatives and re-zoning areas to accommodate multifamily housing complexes. With home prices for single-family homes skyrocketing thanks to massive demand and decimated inventory levels, more and more would-be property owners are being priced out of buying a home. Instead, these individuals are opting to rent for the time being due to financial concerns—making it the perfect time to make a multifamily investment.
The multi-family housing market was a sound investment option even pre-pandemic. A large segment of the millennial population have preferred renting as opposed to buying due to lifestyle and financial factors. Additionally, the aging Baby Boomer generation will increasingly reach retirement age and downsize—oftentimes to senior multi-family complexes—which will only serve to further increase the future demand. That explains why major industry players Freddie Mac and Fannie Mae both anticipate the multifamily market to continue to expand for the foreseeable future.
Real estate investors seeking to diversify their portfolios with multifamily assets should do their homework before selecting a property. Concentrating on areas where there is a large contingent of young professionals who tend to rent is a great way to kick off your search. Still, considering the fact that the number of U.S. tenants collectively has risen by more than 30% since 2000 and the median multifamily occupancy rate is over 96% (and still rising), there is a good chance that a properly executed investment in any major market has the potential for impressive returns.
The Time is Now
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