8 Property Trends Multifamily Investors Are Likely to See in 2017

by | BiggerPockets.com

Multifamily is a very popular sector in 2017. What can investors expect in this niche? What moves may help investors get the most out of their apartment building investments?

Here are some of the reasons behind this sector becoming so sought after—plus some important elements that can help investors be more aware of how to make their units appealing to renters.

8 Property Trends Multifamily Investors Are Likely to See in 2017

1. Compressed Cap Rates

As demand steadily increases, sellers are able to get top dollar for these properties, which leads to lower cap rates. For investors, off-market deals may offer more profitable options. Sourcing these properties yourself can help avoid the multiple offer competitions you’ll experience with publicly listed properties. Utilizing low interest leverage or equity partnerships (or a combination of both) can also help elevate real cash-on-cash returns.

Related: THIS Major Tax Benefit Convinced Me to Put My Money Into Large Multifamilies

2. Single Family Investors Graduating to Multifamily

The increase in sales this year are expected to be a combination of both foreign investment and single family investors who are stepping up to multifamily apartments to feed their need for yield and deal flow. This year, I personally graduated from single-family investing to this asset class due to the many benefits it offers. It is far less time intensive to purchase a 46-unit apartment building than 46 single family homes!

multifamily-benefits

3. Jobs & Wage Growth

Job growth appears to be robust in 2017. That should last as long as the stock market keeps performing. Wages also appear to be finally growing slowly. This could build in more sustainable performance for multifamily landlords. It may also provide more fuel for rental rate increases.

4. Amenities, Including On-Site Fitness

Due to the drive to live healthier lifestyles and pressure to look great on Instagram, when it comes to in-demand amenities, Multifamily Executive reports that 56% of renters are now “extremely interested” in on-site fitness. In fact, 82% of residents name this feature as one of their top five amenities. An exercise facility can range from modern and well-equipped gyms to outdoor jogging trails or fitness classes.

5. Pets-Friendly Spaces

Pets are playing a huge role as well. Recent surveys show that Millennials are even putting their pets ahead of spouses and kids when it comes to housing considerations. These tenants no longer seek places that simply accept pets; they look for properties that feature facilities specifically for their pets. That may include outdoor spaces, pet spas, and more.

pets-in-rentals

Related: How I Bought a Multi-Million Dollar Apartment Complex at the Age of 26

6. High-Tech Upgrades

Smart home tech is no longer a rare “wow” factor. It is expected in many areas. Today, this includes features like smart lighting and temperature control, as well as lockers for receiving online shopping purchases.

7. The Rise of Green Leases

The Building Design and Construction Network says that green leases are becoming a big part of the multifamily sector today. Though leasing agents no longer have to sell those features, renters are flocking to them. Those buildings with green features are charging premium rents, and it is a big business for managers looking to increase bottom lines.

8. Pivots in Property Purpose

As the housing market continues to change, we once again see a notable amount of conversions of multifamily property. Depending on which way the market goes, condos can be converted to rentals, and rental buildings can provide exits to investors as condos.

Summary

lt’s an interesting time to be investing in multifamily properties. There are still good opportunities if you know where to look and how to structure investments right. We may not see spreads this good for a while. New and evolving trends are also giving investors the chance to be on the forefront of the changing market and step up to serve renters with what they really want.

What would you add to this list?

Leave your comments below!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record.

8 Comments

  1. Christopher Smith

    Multi Family cap rates have been close to nil in my market now for years and years. Just about anything worth owning (and frankly some not worth owning), have been bid up in price so high that they are little more than places to park money for off shore investors who don’t really worry about profitability. Those folks are just looking to get their funds out from under their local country’s control.

    I keep looking in the middle of the country, but opportunities there are generally slim unless you are willing to take the risk of overpaying (as so many are now) in the hope that everything works out just right.

  2. Zach Staruch

    Is there any sort of delivery locker available for single family homes? I’ve seen the delivery lockers in apartment buildings, where USPS puts a package in a large locker and a key to that locker in the individual unit’s mailbox but I’d love to have something similar in a SFH. Package theft is so rampant these days, it would be great if UPS & FedEx had a universal key that opened a locker that only the homeowner could then retrieve what’s inside.

    Is there anything like this available?

  3. Chris Jackson

    I know quite a few multifamily investors looking for the time-savings of a 50 unit building vs the time it takes to purchase 50 SFRs. Too bad they are overpaying based on the frustration of not finding the number of MF deals that meet their return expectations. In the end they are spending a ton of time only to get 1 to 2 marginal deals a year, if they are lucky.

    So I ask, if you are spending a ton of time to beat out the competition in order to find that one deal in 100 in MF right now that does indeed have great returns, are you spending less time? and thus getting the economies of scale benefit that MF does provide?

    While everyone is zigging and singing the Multifamily praises, we zagged 2 years ago and changed our view of SFRs to one through a multifamily lens. If you own 50 SFRs, yes its alot of work. But I like double digit returns and am willing to do the work to get them.

    I guess we demoted ourselves to SFRs. lol

    7 CAPs for C Class MF in tier 3 markets is not logical in the risk reward overall view of what returns are meant to be. Payment for investment risk and work. C class MF has historically been 8-9 CAP and thats stabilized. Which makes sense for C class. High returns are mostly being produced today on the reposition side, which is fancy word for flipping in SF world. Didn’t we have a time not so long ago where flipping was the soup of the day and people made tons of money buying retail, adding a fence and selling 2 months later for 15k.

    Same now except the MF buyers are buying at low CAPs raising rents, and selling off to the next person and only really capturing the big return on the decreased CAP on sale, not the cash flow ride, which is what truly the wonderful power of multifamily is meant to be. What happens when rents go down? Chris rents will never go down. When have we heard something like that before?

    PS we love multifamily we would close on one tomorrow if it made sense, But it’s July and I haven’t seen an MF come across my desk in months that even gets passed phase 1 of our process.

    But I can find a tenant that can’t buy a house right now (because they have been paying high rent so long and cant save enough) and will pay a high rent with us on a low all-in on an SFR all day. Yes takes a lot of work. Its a process with systems and lot of teamwork.

    Anyway, multifamily is wonderful but there are other ways to achieve the benefits of multifamily at the height of the multifamily market without having to buy multifamily.

    But if you love multifamily keep going. It is a great asset class. Just watch all the signs. If it were easy everyone would be doing it. Oh wait everyone is doing it, but multifamily is not as easy as it is being portrayed currently.

    Good luck on your journey everyone. Being a real estate investor is a wonderful ride folks.

  4. Chris Field

    Well said I think a lot of the mulitifamily market is overvalued now. To much capital chasing returns. I wouldn’t buy my buildings for what they are worth today.

    It was very good from 2008-2013ish, when you could find some nice deals. Also you could do real reposition projects not adding a coin op washer and some more storage.

    I’m back into sfh as well waiting for the next correction.

    Commercial arms at over 70% ltv at today’s inflated prices will do that at some point. A 20% rental income haircut with a 3% rate increase will kill most of the highly leveraged deals that you see.

    That’s when I’ll be bargin hunting again.

  5. Dylan Tettemer

    This is a great read and definitely will begin keeping all that in mind as I am looking at properties. We are definitely due for a market correction soon I believe and when it happens I can’t wait to get ahold of units for pennies on the dollar.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here