Multifamily Investing in 2022: What Are the Best and Worst Aspects?

February 16, 2022
February 16, 2022 disrupt

Multifamily Investing in 2022: What Are the Best and Worst Aspects?5 min read

Anyone involved in multifamily investing knows that it can sometimes be a challenging business with significant return potential. Historically, investing in multifamily units has been a powerful way to build generational wealth. Is it still one of the best investments in 2022? Here’s what you need to know (spoiler alert: it is!).

 

Multifamily Investing in 2022: The Pros

2022 is already shaping up to be an exciting year for the real estate market. There are numerous macro and microeconomic forces at work that are buoying the market substantially. Indeed, there are three pros that investors need to know for this year.

Of course, please remember that all these pros and cons are merely opinions. All investments risk loss, and past performance is no guarantee of future returns!

 

The Appreciation and Rent Potential Is Significant

Both real estate and rent have appreciated far faster than in the past decade. That appreciation has meant that multifamily properties are in more demand than ever. Indeed, rent climbed 10% in 65 of 150 major metropolitan areas. Perhaps even more surprising is that these high rents did not deter people from occupying the units. The occupancy rate rose to 96.5% in 2021, surpassing the previous record set back in 2000.

These two factors – high occupancy and high rents – mean that multifamily properties will likely be excellent sources of passive monthly income, but they will also have strong appreciation potential. After all, if rents keep rising, so will the building’s value as a money-making mechanism to another investor.

With an overall positive economic outlook in 2022, it’s reasonable to assume that this trend will continue.

 

Multifamily Investing Now Means Stability in Many Markets

This positive aspect of multifamily investing is a bit of a corollary to the occupancy rate, but it’s worth noting and analyzing independently. 

Part of the upward pressure on rents is that the housing market has skyrocketed. Renters who would have thought about buying in the past are waiting for a slowdown in property prices. These 20%-per-year increases in prices for single-family homes will likely not continue forever. For many people, renting makes financial sense because property prices have increased so much. Homeownership is no longer the financially savvy choice.

Having increased numbers of renters means lower vacancy rates. With more units rented (and a quicker turnaround time if someone leaves), landlords now see incredible stability in their income streams. Whether you own a 100-unit apartment or a 4-apartment complex, you likely see most – if not all – of your units rented at once. Even if someone leaves, your overall income will not take as much of a hit as it may have just five years ago!

As noted earlier, this high occupancy rate is a new record, so at no point in the past have landlords been able to fill multifamily units and gain income stability quite like today!

 

There Are Multifamily Avenues To Becoming a Multifamily Investor 

Compared to investing in other real estate ventures, investing in multifamily properties through a real estate syndication is straightforward. Real estate syndications allow investors with zero experience in the industry to contribute capital that will then be used to acquire multifamily properties and earn substantial returns on their investment. 

If you have the time, capital, and experience, owning your own multifamily property may be the path for you. Owning your own multifamily homes can be incredibly rewarding and highly profitable. However, keep in mind this is a full-time job. Without extensive experience in the business, it can be a risky endeavor when taking down a multifamily property on your own. 

 

And Now the Cons of Multifamily Investing…

Of course, no investment is perfect and devoid of all risk! Multifamily investing does have its share of risks and potential problems. Here are the top two!

Inflation and Multifamily

Inflation is the worry on everyone’s mind right now. So far, in some respects, inflation has been good to multifamily owners as it is likely at least partially responsible for increased rents and building values.

However, nobody knows how continued inflation will affect the economy if the Federal Reserve cannot lower it. And, even if the Fed can slow the rate down, the increase in interest rates may cause other issues for multifamily landlords, especially if their property has a variable mortgage.

Additionally, rents may hit a ceiling as wages are not rising as fast as costs, but outward expenses (like repairs, gardeners, plumbers, etc.) will continue to track inflation. This hypothetical scenario could squeeze multifamily investors who can only get so much rent but have costs escalating rapidly.

While inflation may not affect multifamily investors, it’s a new risk that investors across the equity and asset spectrums need to consider!

High Cost of Entry 

Unlike some of the other real estate investment options, like REITs, investing in multifamily units has a relatively high barrier of entry. In major markets, like New York or Los Angeles, multifamily buildings can be millions of dollars. You will likely need 20% down to purchase the building, which is still a large sum of money in many major metropolitan areas.

If you are looking to invest in multifamily real estate through syndication, most syndication companies will require you to bring a minimum investment of $50,000 to the deal.

If you don’t have the funds to buy a multifamily building yet or front the cost for participating in syndication, REITs is another option for you that will require a lower barrier to entry.  

 

Multifamily Investing in 2022: Still More Pros Than Cons

2022 is shaping up to be a year of inflation uncertainty. However, there are still far more pros than cons regarding multifamily investing.

The fact that occupancy rates and rents are reaching all-time highs in many major markets (with no signs of slowing down) demonstrates significant potential for investors to buy these complexes. Additionally, consider the simplicity of investing in this opportunity through syndication and you have a recipe for a straightforward, high potential ROI investment – something that can be hard to find at times!

If you are considering investing in multifamily homes, now would be a good time! If you are looking for ways to start investing in multifamily through real estate syndications, feel free to reach out to us at Disruptequity.com/invest to stay in the loop on our open multifamily investment opportunities. 

Share this: