Lala Elizondo, Managing Partner of Tule Capital, Startup advisor and Business Consultant. She sits on the board of Endeavor Mexico North.
Within the dynamic world of real estate, multifamily properties are currently shining as a beacon of opportunity for investors seeking both stability and growth. Having invested in traditional bonds and stock portfolios, as well as in higher-risk assets like venture capital, I’ve realized that real estate investing is an important part of an investor’s portfolio. However, through helping lead a real estate investment firm, I’ve also seen how critical it is for investors to be aware of both the benefits and the risks of multifamily property investments if they want to set themselves up for success.
Why consider investing in a multifamily property?
1. Homes are becoming less affordable. Escalating home prices and housing shortages are causing many individuals and families to lean toward renting instead of buying. This shift toward rental housing enhances the demand for multifamily units.
2. You might find some real estate on sale. Just a couple of years ago, there was fierce competition among potential buyers, which drove property prices to high levels. However, with the interest rate hikes experienced in recent years, I’ve seen some investors who have halted their property purchases. I’ve also observed that some of those who had previously invested in assets using floating-rate and short-term bridge loans are now facing the necessity to sell their properties at a discount compared to their earlier purchase prices. These market conditions have created a unique opportunity where some real estate assets are available at prices lower than their potential value.
3. Competition among buyers may be lower. I’m finding the current multifamily real estate market offers an advantage of reduced competition. Based on my experience, competition seems to be at its lowest point in a decade, which means investors could have an increased likelihood of securing properties without facing intense bidding wars.
4. You might be able to set buyer-friendly terms. The prevailing market slowdown has opened up avenues for investors to consider alternatives like seller financing and to negotiate terms in harmony with their strategies, while also granting them stronger bargaining power.
5. Multifamily property can provide tax benefits. The multifamily real estate sector offers an array of tax benefits. Investors can capitalize on deductions related to mortgage interest, property taxes and depreciation, among others. These tax advantages contribute to optimizing an investor’s overall financial picture.
6. Inflation and recession favor investing in apartments. During times of inflation or economic recession, I’ve found that multifamily properties are often resilient. The consistent demand for rental housing, even in challenging economic environments, can make multifamily real estate an attractive hedge against inflation and a potential safeguard during economic downturns.
7. Multifamily fundamentals are strong. The multifamily sector stands firm as a pillar of stability within the real estate market. The ongoing demand for rental housing contributes to the enduring strength of multifamily property fundamentals. In my experience, this sector can offer investors a reliable income stream and the potential for long-term capital growth.
What are the risks?
As with any type of investing, investing in multifamily real estate carries risks you should consider. A few of these risks include market fluctuations that impact rental income and property values; complex property management tasks; potential financing challenges; compliance with housing regulations; tenant-related issues; and market oversaturation. You’ll also need to consider ongoing maintenance costs and the need for adequate insurance and liability protection. Finally, ensure you have a clear exit strategy, understand location-specific risks and are paying attention to changes in interest rates. These risks should be carefully assessed and managed to achieve success in multifamily property investments.
I believe that in these times, the team or operator you choose to invest with is as much or more important than the property. Ensure you look at their track record, personal liquidity and whether your partner has a strong business background.
How can you get started?
To begin your journey as a passive multifamily investor, start by educating yourself and defining your investment goals. You need to select an investment vehicle that aligns with your objectives and financial resources. It’s essential to recognize that in such investments, though they can offer cash flow, your funds won’t be as liquid as they would be in a savings account or CDs. Therefore, it’s crucial to assess the amount you’re comfortable letting sit and patiently wait for it to generate returns.
In summary, the multifamily real estate sector offers numerous compelling reasons for investors to take action, though there are risks and best practices that need to be considered as well. With favorable market conditions, robust fundamentals and the potential for sustained growth, multifamily properties could offer a blend of stability and financial success for investors thinking of diving into the real estate investment landscape.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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