Multifamily’s “Watershed Year” Shows Compelling Investment Case

Despite unpredictable swings in the stock markets, investment sectors struggling in an uncertain economy, and a wobbly recovery from the COVID pandemic, , multifamily housing remains an attractive and secure investment.

Forbes recently hailed 2021 as a “watershed year” for multifamily housing as rising home prices, major changes in the jobs market and extended work-from-home policies incentivize more people to rent instead of buy.

CBRE estimates investment in multifamily in the United States will reach $148 billion this year, a 33% gain from the previous year, driven by suburban demand, and low-rise and less-dense properties that are attractive to workforce renters. 

Government stimulus checks, extended unemployment benefits and other policy changes gave multifamily investors confidence in the sector, while a slowdown in new construction made the supply-demand equation more favorable for owners to push through rental rate increases.
Meanwhile, soaring prices for single family homes made buying impossible for many young professionals and others impacted by layoffs and business closures during the pandemic, bolstering the investment case for apartments and rental townhomes.

Benefits of Multifamily Investing

Multifamily communities are essential for workforce housing, empty nesters, young professionals and anyone going through major life events such as relocation for a job. Over the past 25 years, multifamily has provided the highest average annual total returns of any commercial real estate sector. Investing in multifamily offers a number of benefits:

  1. Property owners have increased pricing power as apartment rents have risen on both one-bedroom and two-bedroom apartments in most parts of the country.
  2. Multifamily housing can be a hedge against inflation, with less volatility and lower risk than certain other types of real estate investments.
  3. Historically low interest rates and plenty of access to low-cost capital make it more affordable for owners to make capital improvements so they can reposition properties and earn higher returns.
  4. Apartments offer a diversity of cash flow through a large pool of tenants secured by leases.
  5. Rental properties generally have a lower effective tax rate than other forms of income due to the IRS depreciation deduction and the capital gains tax. The depreciation deduction charts an asset’s decrease in value, reducing its taxable income. The capital gains tax is often as much as 17% less than ordinary income tax rates. 1031 exchanges offer additional benefits by allowing deferment of capital gains tax when sales proceeds are reinvested.

Multifamily housing offers an opportunity to diversify your portfolio and build long-term wealth through low risk, stable investments. By investing in a multifamily asset through a professional investment management company, you enjoy passive income without the hassle of maintenance or dealing with occupancy and vacancy issues.

Read our multifamily investment approach or contact us to learn more about our real estate investment opportunities.