The Current State of the Multifamily Market

Multifamily properties have proven to be an inflation hedge, providing investors with reliable income, stability, and appreciation potential. Rent growth accelerated across the country, however, asking rents have moderated from their record high at the beginning of 2022, decelerating to 9.4 percent on a year-over-year basis since October, according to Multi-Housing News. If this pattern continues, renting will become consumer’s top choice until the housing market cools off, which is not anticipated for another two to three years. Additionally, according to BankRate, the current average rate for a 30-year fixed mortgage is 7.32 percent, which is further pushing people out of the homeownership market, and into renting as a suitable alternative.

Impacts of Inflation on Multifamily

Rising inflation has tightened the strings on consumer’s wallets across the country, decreasing their purchasing power and sending impactful waves across the entire economy. People looking to purchase a home are facing increasing mortgage rates, which prices many out of the market. However, investors are benefiting from acquiring apartment buildings during periods of high inflation, as these assets boast the lowest vacancy rates in the industry. Typically, when the housing market slows and buyers are pushed out of the market, multifamily rental demand grows, giving landlords the opportunity to increase rents. Additionally, multifamily properties offer investors the opportunity to achieve faster growth in their portfolios, stable cash flow, appreciation value potential, and the benefits of long-term fixed loan rates. Overall, multifamily is a “safe-haven” during trying economy times.

“Q3 2022 sales volume for multifamily assets hit $60 billion, which sits well above the average pre-pandemic transaction volume. Furthermore, multifamily investment once again ranked number one in sales volume beating the other three major property types so far this year.” –CoStar

How to Stay Resilient in Multifamily During a Recession

Retaining Tenants:

• Address maintenance concerns in a timely manner: Prioritizing tenant welfare is essential to running a successful multifamily facility, which is why it is important that tenants feel supported by their landlord. To keep tenant retention, handling maintenance requests as soon as possible is a way to ensure your tenants continue their lease.

•  Determine needs: Whether it’s security, amenities, or adjustments to their lease, it is key as a landlord to be aware of your tenants’ demands. Even just boosting community moral can retain tenants in numerous ways.

• Maintain property upkeep: Preserving the grounds is a way to increase curb appeal. Updating the front of the building, a fresh paint job, landscaping, and new pavement are all ways to retain tenants and even gain new ones.

Acquiring tenants:

• Utilize a marketing strategy: Listing units with high-quality photographs on various leasing websites to gain maximum exposure is key. Include as many details as possible and provide a point of contact for potential tenants to set up listings.

• Understand the market: Analyzing local market prices and demographics can help you strategically list your units at average market price. If renters in the area are being priced out of other properties, it creates an opportunity in the market.

Research the market:

• Know the market rents: Landlords need to understand their property’s neighborhood, including demographics, recent listings, and property conditions. Having a comprehensive understanding of a property’s surrounding area, will ensure that landlords are in-line with the community’s needs and opportunities.

• Understanding a property’s potential: It is key to know what opportunities an asset has, this can include possible lease buyouts, rent increases, and value-add development. A landlord should always be aware of the direction they are planning on taking their investment in, that way they achieve the greatest profit.

Decreasing Expenses:

• Invest in a preventative maintenance plan: Finding a good preventative maintenance plan will lower the costs of unforeseen circumstances affecting high-cost systems or equipment. According to a study from BOMA, multifamily asset owners should allocate between 4.5 and 7.5 percent of annual operating costs towards preventative maintenance

• Know when to repair and when to replace: If an owner is continuously paying to repair a system, it may be time to pay the one-time price of replacing. However, there are many circumstances where repairing will suffice, which is why it is important to check with an accountant to determine which route is best long-term. It is essential to stabilize cash flow in the grand scheme of things.

Building Long-Term Appreciation in Your Multifamily Asset

The economy inevitably ebbs and flows, which is why it is essential for owners to position their multifamily assets for long-term financial success. Since an apartment’s value is not determined by comps, investors of properties can accelerate appreciation. The value of a multifamily asset is determined by its generated yield, pushing landlords to add amenities, security, and renovations to justify rent increases. In order to get the most from a multifamily asset, an owner should increase income and lower costs to increase net operating income (NOI). Additionally, since multifamily assets can be financed in various ways, it offers investors an opportunity to set aside cash to invest in features that will elevate the property’s future. This process can be done quickly or over time, which gives the owner the power and flexibility to accelerate appreciation as they wish.

The Future of Multifamily

The uncertainty of the economy is working in the multifamily market’s favor. Continued construction is meeting high consumer demand, decreasing vacancy rates across the country. Investors can capitalize on this unique opportunity in the market and reem the benefits of a stable income, accelerated appreciation, and large pool of tenants.