How Would a Recession Affect Multifamily Investing?
If you’re a multifamily investor, it’s natural to wonder how a recession would affect your portfolio. While no asset class is completely recession-proof, apartment investments have a history of performing better than many others.
Despite the current slowdown, demand for rental housing remains strong, supply is constrained and construction is likely to continue to be muted. All this will keep cap rates stable and help bolster multifamily real estate’s fundamentals.
Demand for rental housing is constrained
The demand for rental housing is constrained, both due to a shortage of starter homes and a recession on the horizon. A recession raises a lot of anxiety for would-be homebuyers: If they lose their job or have their income stagnate, will they be able to afford their mortgage?
As a result, more people than ever before are choosing to rent their homes. These individuals find that renting lowers their cost of living compared to home ownership, which helps them avoid the financial burdens of homeownership and allows them to save for a down payment.
The tight supply of rental housing in the US is likely to continue, and rent prices will increase. This will be driven by increased immigration, high interest rates and mortgage rates, social unrest and a lack of units in the affordable range.
Supply of rental housing is constrained
The supply of rental housing has been constrained since the recession. As a result, rents have become more expensive than they would otherwise be and are unaffordable for many households.
This trend primarily affects lower-income families, which make up the majority of the rental population. In addition to rising costs, there have been a number of other factors contributing to the high cost of renting.
One of the most important factors is affordability, which has been increasing since 2010. The main reason for this is the decline in home prices that has occurred during the recession and continued tightening mortgage lending standards that have hampered homeownership.
Another key factor in the rise of affordable rentals is that a growing number of households are choosing to rent instead of buy. This is a significant change to the housing market that will drive vacancy rates higher and increase demand for apartment units.
Strong underlying demographic trends will continue to fuel demand for apartments. These include the retirement of baby boomers, the growth in the echo-boom population, and the formation of new immigrant households.
Vacancy rates are high
Vacancy rates are an important metric for any real estate investor. Not only does it affect the financial performance of the property itself. It also impacts the market value of the entire portfolio.
A high vacancy rate is bad news for any landlord or multifamily property owner, as it means that tenants are leaving the building. That can be a huge drain on the overall profitability of the business, especially if the tenant turnover is high.
To combat high vacancy rates, take steps to retain existing tenants and attract new ones. You may want to update the units or give them more amenities, like walk-in closets and in-unit washer dryers. You can also negotiate special deals with local businesses to give your tenants a discount, like hair salons or pizza places.
Rents are low
Rents are low, making it a good time to invest in multifamily housing. As long as investors have a solid understanding of the local market. Acquisition selectivity, they can benefit from this trend.
One of the main reasons to invest in multifamily properties is to generate multiple streams of monthly income. This can be a great option for investors looking to generate passive income during retirement.
Another reason is that a multifamily property can be a great hedge against inflation. This is because apartment rents are typically higher than inflation, while some of the major expenses tend to hold steady.
As with all investments, however, there are risks involved in multifamily investing. Luckily, many people turn to property management companies to help them overcome these challenges. They can provide an experienced team to handle the day-to-day responsibilities and share their expertise with you.