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Is It the Right Time to Invest in Multifamily Real Estate?

It’s no secret that the multifamily real estate investing market is booming. As one of the few industries that have shown consistent growth over the past decade, it’s wise to invest in this lucrative market if you’re looking for long-term returns on your investment. 

Multifamily homes are more profitable than single-family homes because you can rent multiple units out to individuals at once instead of selling them to just one buyer. These rentals also come with more maintenance costs and property management fees, offset by the steady income stream from your tenants’ monthly rent payments. In addition, demand for apartments is increasing as more millennials move into cities where they don’t want or cannot afford single-family homes.

Here are some reasons why it is the right time for buying multi-family properties:

The Market is Booming

The multifamily real estate market is expanding rapidly. This can be attributed to several factors, including the low-interest rate, a growing population, and an increase in income. Inflation and demographic changes also drive the demand for affordable yet high-quality and safe housing, something only multifamily properties can provide. 

Multifamily Homes Have Become More Profitable Since the Financial Crisis.

While single-family homes are a good investment, multifamily housing investment is even better. You can invest in them with an eye to long-term appreciation or short-term profits from renting out the homes. But if you’re looking for ways to make money, there are plenty of ways for multifamily properties to outperform single-family dwellings:

  • Dividends
  • Residual income
  • Mortgage payments (for tax purposes)
  • Cash flow

Demand for Apartments Is Increasing

Demand for affordable apartments is on the rise, making multifamily real estate investing highly profitable. The U.S. Census Bureau reports that the number of Americans living alone has increased by 50% since 1980—to 27 million people today. Individuals who live alone occupy more than 60% of these multifamily units, and this trend is likely to increase as the population ages. In addition, more young people are choosing to live on their own before getting married or starting families; this group now accounts for 40% of all renter households in America versus 29% in 1990 (Census Data).

Similarly, more baby boomers are choosing to downsize into smaller apartments rather than move out of cities entirely when they retire; this shift reduces demand for large homes while increasing demand for smaller units within city limits (AARP). Many multifamily blogs explain this shift as a result of an increase in demand for multifamily real estate overall: The U.S.’s 50+ demographic accounted for nearly a third of all new household formations between 2000 and 2016 – with most happening within metropolitan areas (US Census Bureau).

Multifamily Construction Is Falling Short of Demand

This has a positive impact on people interested in buying multi-family properties. The number of renters has reached a historic high, according to the U.S Census Bureau and CoreLogic’s 2018 Market Outlook report, which predicts that the number will continue to grow over the next 10 years as millennials age into their 30s and beyond.

The supply shortage means developers are building fewer apartments than there is demand for in many markets across America—especially those with strong job growth like Austin, Denver, or Washington D.C., where rents are climbing faster than anywhere else in America, according to Zillow data. To put it simply, supply shortage results in higher rent, making multifamily housing investment worthwhile for investors!

Multifamily real estate is one of the best investments for people who want to increase their wealth. The market for this type of investment is growing, which means you’ll be able to earn more money in the long run. But before you invest in multifamily properties, there are a few things to consider first, such as:

Determine Your Investment Timeline

The length of your investment will impact how you approach buying, managing, and selling the property. If you plan to hold an asset for a long time (at least three to five years), then multifamily real estate can offer better returns than other investments with less risk. Long-term multifamily real estate investments tend to be more stable because they are not subject to as much volatility as short-term investments such as stocks or bonds.

Research the Market

It is important to research and understand the multifamily real estate investing market. You need to know what you are getting into, so you can be prepared for any challenges. Researching the market is also helpful for competitors in your area, as this gives them insight into how much money they will have to spend on renovations and marketing campaigns. 

Do Some Math.

Doing some math is indispensable to determining whether or not multifamily housing investment is right for you. You’ll need to calculate your annual return on investment (ROI), cash flow, return on equity, net operating income, debt coverage ratio, and cap rate.

Decide Between an Active and Passive Investment.

The best way to decide between an active and passive investment is to consider whether you want to be involved in the day-to-day management of your property or if you’d rather not have any responsibility. If you’re interested in getting involved, it’s better to go with an active real estate investment. Active investments involve more hands-on work and give investors more control over their properties.

If you aren’t particularly interested in learning to invest in multifamily properties or becoming a landlord yourself, then a passive investment may be better suited for your needs. Passive investments are generally less risky than active ones because they typically don’t require as much time or energy on your part.

With the right knowledge, mindset, and resources, you can tap into the potential of multifamily homes and strike when the iron is hot. 2022 was a massive year for investors who made it big by buying multi-family properties, and the trend is likely to continue for the next several years. If you want to invest, too, now is the time!

It might be overwhelming to jump into the world of multifamily investments, so you should consider taking an investment course. The Multifamily Mindset is a leading education company to help new and experienced investors close the best deals and earn impressive profits. With an abundance of helpful resources like blogs written by real estate expert Todd Millar and daily podcasts, you can increase your knowledge on why and how to invest in multifamily homes!

Make it big in the multifamily housing investment industry!