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How has the multifamily investing landscape changed since 2016?
During a recent conversation with a younger multifamily investor, I was asked how the market has changed since I began investing in multifamily (I closed my first deal in 2016). After some painful recollections about deals I should (and could) have bought, as all investors agonize over when remembering how inexpensive deals were 3/5/7 years ago, I shared several systemic changes in the multifamily investing landscape (outside of the obvious observation that prices and rents have skyrocketed).
Regardless, here are the five changes I mentioned - you may find these insightful:
- There are FAR fewer unsophisticated sellers and owners of multifamily real estate in 2024 than there were in 2016.
There is far more training, education, and resources available to investors who want to learn the business in 2024 than in 2016. Nowadays, owning a rental property and not understanding how to run it remotely effectively is almost impossible. Although 2016 doesn't feel like long ago, there was only ONE podcast (BiggerPockets), hardly any YouTube content, etc, geared towards helping new investors learn the business. Fundamentally, the average baseline investor skillset has increased dramatically. This has helped to create a more efficient market, reduce the # of truly distressed deals, and more.
- Yields are significantly lower than in 2016, as the market has become more competitive.
This is partly due to what was discussed in #1 but is also because alternative investing has become more recognized and accepted by non-institutional investors. Whether this is retail investors investing in syndicated deals or directly buying real estate, far more capital is being deployed into real estate than ever before (especially investors aged 18-35). Additionally, data sources like CoStar and Real Page make it much harder for owners to misprice their apartments or for brokers to misprice their listings. The spread between debt and cap rates, the number of absurdly mispriced deals, and the margin for operational error have all shrunk. Deals are trading in a much higher window!
- The technology available to property managers and multifamily operators has 10Xed.
Back in 2016, a viable value-add strategy was offering residents the ability to pay online and electronically submit maintenance requests. Literally, just adopting property management software and giving residents a portal improved their experience. In 2024, using quality PM software is table stakes—the best PMs are leveraging PM software, leasing software, maintenance dispatching tools, AI, resident experience systems, etc. There are also far more resources available to owners regarding investor reporting, underwriting deals, etc.
- The use of virtual talent has EXPLODED.
Leveraging virtual employees has basically gone from something that was nonexistent in 2016 to where, in 2024, if you are not hiring virtual talent in your business, you're being left behind (especially in property management). Over 50% of the jobs in a PM office can be done remotely and, therefore, out of the country by remote team members. Outside of PM, real estate firms are increasingly leveraging remote talent to assist with asset management, underwriting, investor relations, marketing, and on and on.
- Widespread adoption of social media amongst real estate investors ahs changed the game
Social media has affected countless areas within the real estate business, including (but not limited to) streamlining the capital raise process, developing partnerships, meeting vendors, establishing trust at scale, finding deals, etc. Such a massive part of successful real estate investing is just being "top of mind" with those in your network, whether that be brokers, LPs, or potential JV partners. Social media has enabled investors to do this predictably, at scale. It has also leveled the playing field for investors looking to raise capital who don't have an extensive Rolodex of investors they can leverage - telling their story online and documenting their business brings people to them.
These are trends/dynamics that will continue to develop into the future. In my opinion, investing in multifamily real estate will never be easier (and less competitive) than it is today!
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What's going on in the multifamily real estate market?
The multifamily real estate sector is experiencing a significant rise in fraud, with the industry now being the most targeted globally. The increase in fraudulent activities, including fake pay stubs, credit scores, and background checks, has been exacerbated by the pandemic-induced economic downturn. Property managers are struggling with detection as fraudulent techniques become more sophisticated.
The deterioration of renters' credit and the rise in defaults further complicate the situation. Proactive measures such as verifying payments, conducting thorough background checks, and employing advanced fraud prevention technologies are recommended to combat these issues.
Key Takeaways:
- Increased Fraudulent Activity: The multifamily sector is seeing a surge in fraudulent applications, with the rate of fraud doubling from February 2020 to August 2020. Detection rates have also dropped significantly, from 90% to 75%.
- Deterioration in Renters' Financial Health: Credit scores are declining, debt-to-income ratios are rising, and defaults are more common, particularly within the first six months of a lease.
- Proactive Fraud Prevention Measures: Property managers should adopt stringent procedures, including verifying payments, calling employers, requiring multiple months of financial documentation, and using rent guarantee programs to mitigate fraud risks.
By staying ahead of evolving fraud tactics and refining operational procedures, the industry can better safeguard against fraudulent activities and maintain the integrity of tenant screening and rent collection processes.
Article by Shane Robinson posted on the Multifamily Executive webpage, on July 19, 2024
Newly built apartments are leasing at their lowest rent levels in three years due to a surge in new apartment construction. Developers are cutting base rents and offering significant concessions to fill units, a sign of market softness. Although the overall demand for apartments remains strong, the influx of new units has slowed the leasing pace and is leading to temporary challenges for developers.
Key Takeaways:
- Rents Falling to 2021 Levels: Average rents for new apartments have decreased to levels seen in 2021, with developers offering substantial concessions and reducing base rents to attract tenants.
- Lease-Up Challenges: The high number of new apartments has created a supply glut, causing rents to fall below initial expectations. This trend is expected to continue in the short term, impacting developers' financial projections and lease-up speed.
- Pressure on Existing Apartments: The narrowing rent gap between new and existing apartments might pressure older units, accelerating the process of "filtering," where renters move from older units to newly built ones.
While the apartment market shows strong demand, the current oversupply of new units is leading to lower lease-up rents and increased concessions. This situation is causing short-term difficulties for developers but is expected to stabilize as the construction wave slows in the coming years. Despite the challenges, the demand for apartments remains robust, indicating that the market will eventually recover.
Article by Jay Parsons posted on his LinkedIn account, on July 19, 2024
Rent growth in 2024 has been slower than anticipated despite a strong economy and high demand for apartments. However, RealPage's forecast for 2025 is more positive, predicting improved rent growth due to reduced supply and continued demand. Employment gains and a decrease in new apartment construction are expected to contribute to this improvement.
Key Takeaways:
- Current Rent Growth Slower: In 2024, rent growth has been below expectations despite a resilient job market and high demand. The top 50 markets are projected to see varied rent increases, with many experiencing modest growth or even declines in some areas.
- Supply and Demand Trends: The supply of new apartments is expected to decline by 20% in 2025, while demand remains strong. This shift is anticipated to positively impact rent growth as the market adjusts to the reduced supply.
- Optimistic 2025 Forecast: RealPage's outlook for 2025 is optimistic, predicting that 40% of the top 50 markets could see rent growth exceeding 3%. Overall, the market is expected to benefit from weaker supply, strong demand, and economic improvements.
While rent growth has been subdued in 2024, the forecast for 2025 is promising. A decline in new apartment construction and ongoing strong demand are expected to drive improved rent growth. The overall market conditions suggest a rebound in rent growth rates, benefiting from a more balanced supply-demand dynamic and a stronger economy.
Article by CREDaily Staff posted on the CRE Daily webpage, on July 22, 2024
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What's going on at Aligned Real Estate Partners -
We have numerous deals under contract, all of which fall within our core criteria, including
- A 10-unit property ($2.0M) in Madbury, NH
- A 4-unit property ($390k) in Somersworth, NH
- A 4-unit property ($550k) in Newmarket, NH
- A 10-unit property ($1.65M) in South Berwick, ME, just over the NH border. This will be our first deal in southern Maine, a market we're expanding into.
All of these deals were sourced direct-to-seller. We're beginning to see more opportunities that fit our underwriting criteria as sellers' expectations adjust to meet where buyers are (and the reality of the market). if you're
If you're looking to learn the fundamentals of multifamily real estate investing, be sure to check out our 7-Day Multifamily Program - I dissect how investors can build a robust pipeline of off-market deals, use less of their own money to buy them, and how to operate them like the pros. Learn more below --->
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Best,
Axel Ragnarsson
axel@multifamilywealtheducation.com
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Multifamily Wealth Education, PO Box 396, Chester, NH 03036, United States
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