By Ash Shah
The rental housing industry saw an overall slowing of investment growth in 2022 due to rising inflation, interest rates and various global events. Interest rates were driven higher by the Federal Reserve’s decision to raise the target federal funds rate by 25 basis points in February, bringing the target range to 4.50%-4.75%. This increase in the cost of borrowing negatively affected the market, as it became more expensive for investors to buy properties.
Moreover, geopolitical events such increased tensions between the U.S. and China and the Russia-Ukraine war have caused volatility and uncertainty in the market. This increased uncertainty caused investors to become less willing to take risks, leading to decreased investment activity.
Despite these headwinds, the outlook for the multifamily market for the rest of this year looks positive. Here are some considerations if you’re looking to get into the market in the current economic environment.
2023 Multifamily Investing Outlook
The multifamily sector is poised for continued growth and profitability this year. In a 2023 forecast, CBRE stated that “despite economic headwinds and ongoing capital markets disruptions,” the nation’s multifamily sector was expected to see above average performance. Although the group forecast lower rent growth and higher vacancy rates than in recent years, it noted that housing fundamentals were still strong and anticipated occupancy rates higher than 95% and rent growth at 4%.
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One of the critical drivers of multifamily investment in 2023 is the continued demand for rental properties. Demographic shifts and changing lifestyle preferences are driving demand for rental properties, particularly among younger generations. This presents an opportunity for investors to acquire and develop multifamily properties that cater to the needs of these tenants.
Another key trend driving multifamily investment is the shift toward sustainability and green technologies. Investors are increasingly prioritizing environmental sustainability in their investments. This includes the adoption of green building practices and the incorporation of energy-efficient technologies, which can not only reduce costs but also attract tenants who value sustainability.
The Benefits And Challenges Of Multifamily Investing
Inflation has been a real threat, and stocks and cryptocurrencies have had major fluctuations in the past year. Investing in real estate can help protect against inflation and mitigate investment risk through diversification.
Real estate investing can help you build wealth as it has an inherent value that isn’t subject to the same market forces as traditional investments. In addition, real estate investments have the potential to provide steady income and help hedge against inflation.
While there are many potential benefits to investing in multifamily properties, you should be aware of its risks and potential drawbacks, as well. Multifamily investments are not immune to market volatility and may experience lower occupancy rates and rental income periods during economic downturns.
Investing in multifamily properties requires substantial capital and expertise. You must have the funds to purchase and maintain the property, knowledge of the local real estate market and property management skills. This can be a significant barrier for new or inexperienced investors and may limit their ability to invest in high-quality properties.
Additionally, self-investing requires significant time and effort to manage the property, find tenants and handle maintenance and repairs. This can be time-consuming and stressful, particularly for investors with other professional or personal obligations.
Syndication—For When You Don’t Want To Go It Alone
Investing in multifamily real estate syndication can offer several advantages compared to investing on your own. Syndication provides access to larger, higher-quality properties that may not be available to individual investors due to high upfront costs and other barriers. It also allows you to pool your resources with other investors and leverage the expertise of professional managers, which can lead to better returns and reduced risk.
Additionally, syndication provides passive investment opportunities, allowing you to benefit from the returns without being involved in day-to-day management of the property. This can be particularly attractive if you lack experience or the time to manage your property.
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