6 Key Trends in Multifamily Housing Investing 2022
Rental rates and the number of new buildings in the multifamily real estate market have all increased significantly during the last ten years. There has never been a more interesting time to work in the field. There are a few trends in multifamily housing to keep in mind as the 2020s progress.
This article discusses six multifamily housing trends that are reshaping the sector as we know it. To draw and keep inhabitants, you as a landlord, manager, or investor need to be proactive. Check out the key multifamily trends for 2022 below!
Multifamily Trends 2022
Expected Moderate but Stable Rent Growth
After ending 2020 at an expected negative 0.75 percent, nationwide rent growth reached 10 percent in 2021. In 2021, pent-up demand, a strengthening economy, and hefty discounts offered on many multifamily apartments enabled rent growth to rocket to previously unheard-of levels. In 2022, we anticipate that rent growth will continue to be positive but will slow from the previous year to a more moderate but still high rate. As a result, by year's end 2022, we anticipate a rent increase of between 4.0 and 5.0 percent.
Diversity in Community
The success of both the living environment for inhabitants and the workplace for property workers depends on diversity and inclusion. Multifamily housing ought to be diverse as American society becomes more diverse.
Apartments are rented by a variety of people, not simply young folks. The rent pool is diverse in every way. For instance, multifamily housing is more likely to house older citizens than retirement communities. This calls for careful consideration of your interactions with both present and potential residents. Use inclusive language, such as not using too many acronyms or allusions to popular culture, in your communication and marketing products.
Residents also desire a property management staff that represents the variety in the local area's population. Like residents, property personnel also want to feel a sense of belonging to and affinity for the neighborhood they are responsible for. Retention of employees has an impact on neighborhood morale as a whole. Relationships and alliances between residents and staff are frequently formed over time. Therefore, you should foster an accepting culture and atmosphere where tenants and employees feel a sense of belonging.
Virtual Tours result in an increased numbers of leases
The popularity of online and self-guided tours has increased recently, particularly as mobile applications and digital software have become more sophisticated. The implementation of this novel method of apartment showings has also been accelerated by the epidemic. While allowing potential tenants to locate new properties from the convenience of their own homes, these tools enable property managers to schedule more tours and interact with more prospects.
According to research by the National Multifamily Housing Council, 17% of potential tenants stated they'd like to view an apartment without a leasing agent present. Therefore, in order to entice new residents, property management companies and leasing brokers are increasingly quick to apply innovative virtual tour techniques like virtual staging.
Demand for Multifamily Properties is on the rise
The multifamily housing sector has been resilient both during and after the COVID-19 outbreak. It is evident that interest in multifamily housing is outpacing demand for single-family homes since millennials predominate the rental market.
This is so because millennials like renting over purchasing since it gives them more freedom. Their propensity to rent is correlated with their choices to settle down and have children later in life.
In addition, the single-family market is becoming unaffordable for millennials. Due to the recent market boom, countless millennials and younger individuals no longer have access to homeownership.
Modern renters also desire the independence and opportunity to live anywhere they choose, as the trend of working from home is here to stay. Nationally, rents are rising by 5.4% annually, with Boise, Idaho, experiencing the greatest spike at an astounding 6.6%.
With the exception of studio apartments, all apartment types have experienced rising rental rates and therefore increased rent prices. Renters cherish the concept of being able to pack up and leave when their lease expires, with the knowledge that certain parts of life, such as the consequences of climate change as well as the economic consequences of COVID-19, remain uncertain.
Suburbs and Smaller Cities are on the rise
Numerous tenants have moved to the suburbs in pursuit of multifamily communities with lower population densities as a result of the widespread adoption of working from home. In summary, the suburbs may develop into centers of culture and keep luring tenants who live in units. Furthermore, away from the main cities, big tech businesses like Tesla, Samsung, and Apple have moved into smaller cities and towns.
Modern inhabitants also want areas with a high walkability score and easy access to amenities like restaurants, stores, and bars, unlike the 1950s suburbanization boom. Compared to older generations, millennials and younger people are less likely to buy or drive a car. This is partly a result of their increased understanding of and worries over energy use and climate change.
The modern inhabitant avoids single-family homes and is drawn to multifamily dwellings, which is another distinction. Overall, renters of today want the same level of convenience found in cities, but also the space, budget, and access to clean air that suburbia offers.
Technology in Property Management is in demand for multifamily properties
We have already seen how important technology is to our daily lives in the 2020s. It’s the glue that holds us all together.
And living in an apartment is no exception: With the use of a smartphone app, property technology (proptech) offers residents security, convenience, and safety.
Here are 3 useful examples of property technology:
Intercoms using IP video as a guest management tool
Every day, apartment dwellers open their doors to family, friends, and on-demand service providers. Residents may welcome visitors into the property from their cell phones without traveling down to the lobby thanks to the video IP intercom at the main door. Before letting a visitor inside, residents may visually validate their identification and have a video conversation.
Deliveries made without difficulty
The most frequent grievances tenants make to property managers are about stolen shipments and missing deliveries. These issues are solved by proptech solutions like delivery passes and package rooms.
Reservations for amenities through apps and maintenance requests
Platforms for property management software are introducing mobile applications. Residents may schedule times to use facilities like the pool, fitness gym, and event rooms directly from their cell phones. Residents may also ask management questions, pay their rent, and request maintenance using the app.
Multifamily Investing Trends for 2022
The emergence of new multifamily trends has led to a stream of robust strategies that investors can take advantage of. As usual, multifamily investing strategies depend on an equilibrium between the risks and profit.
Urban regions with Class A assets, especially gateway cities, provide great prospects. These markets suffered greatly during the pandemic-driven recession, but they offer the most promise in the short and medium term. However, given the increased domestic migration trends, they also bring some negative risks.
Strong secondary markets that were less impacted by the epidemic are among the lower-risk, lower-reward sectors of the economy. In contrast to gateway markets, areas like Atlanta, Dallas, Denver, and Philadelphia are anticipated to offer more moderate income and growth as well as a generally consistent outlook for investment return.
Rent growth revenue prospects are constrained in markets with more regulation, particularly those with current or planned rent limits, and higher operational efficiency is needed to generate NOI.
Multifamily Housing Loans
The thought of funding their first property investment puts off a lot of would-be investors, and it's understandable why. The 30-year traditional mortgage is so widely used that it has become ingrained in American culture. When thinking about joining the multifamily market, anything that deviates from that paradigm might be intimidating.
The premise is the same for both multifamily and single-family buildings, but there are just as many parallels as differences. A creditor provides the remaining sum after the borrower contributes a modest amount of their own cash.
Borrowers who are multifamily will immediately notice a lot of peculiarities in the mechanics of the borrowing and purchasing processes. If you want a lender to consider rent revenue for qualifying, they could ask for information on tenancy and leases and anticipate a more complete due diligence procedure than when purchasing a personal property.
Keep in mind that multifamily homes range from cottages to high-rise, luxurious structures, and cheaper properties are often easier to finance.
A simple approach to finance real estate compliant with Freddie Mac and Freddie Mae's underwriting rules is through conventional loans offered by credit unions, banks, and lending institutions. They can have one of many term durations and either a set or adjustable rate.
Traditional single-family property mortgages are the experience and product that conventional loans most closely resemble, yet conventional loans also have certain drawbacks. For bigger or more costly houses, they are often inappropriate. In 2021, $548,250 was the maximum traditional mortgage; however, borrowers in high-cost locations were permitted to apply for bigger loans. Additionally, freshly established organizations could find it difficult to fulfill the standards for credit and credit history.
Loans guaranteed by the Federal Housing Administration are a well-liked multifamily substitute for traditional loans (FHA). Conventional lenders grant the loans instead of the FHA with the understanding that the FH will pay a specific proportion should the applicant default on the mortgage.
FHA-insured loans provide investors a great way to obtain a product that is comparable to a conventional residential mortgage. Long periods, complete amortization, and low-interest rates are the hallmarks of FHA loans. But they also have costs and reporting obligations.
The borrower must occupy the building as their principal residence for loans supported by the FHA on buildings with four units or fewer.
Freddie Mac and Fannie Mae Loans
Loans from Fannie Mae and Freddie Mac make up a sizable chunk of the multifamily lending market and are well-liked by new investors.
Frequently referred to as agency loans, Fannie Mae and Freddie Mac function under a Congressional Charter. Freddie Mac and Fannie Mae, like the FHA, do not provide loans; rather, applicants must submit loan applications through recognized lenders. Freddie Mac or Fannie Mae purchases the loan following the closing.
The agencies provide a range of loan terms and durations, including interest-only loans, which are ideal for homes that the borrower plans to swiftly sell or refinance.
For eligible military veterans and their families, the U.S. Veterans Administration (VA) also guarantees mortgage loans. The VA program covers homes with up to four units, but the majority are widely known for single-family loans.
A VA loan is a wonderful starting point for real estate investing for individuals who are eligible. Small multifamily buildings can get VA loans with the same wonderful advantages as single-family houses, including up to 100% financing, lengthy terms, low-interest rates, no need for private mortgage insurance, and no minimum credit score requirements.
Investors end up turning to bridge loans when waiting for a permanent loan to come through. Agency and FHA loans can both take longer to close than a conventional loan. They are helpful when the borrower needs extra time to prove improved occupancy or a higher rental rate in order to be eligible for a permanent loan.
Bridge loans often have higher rates of interest because they are only temporary. These loans are typically only issued for a maximum of two years. They may, however, occasionally be prolonged by another year or two.
Investors can discover the value of keeping up with shifting tenant expectations and preferences by examining historical multifamily patterns. Modern structures run a considerably higher danger of stagnation and obsolescence than multifamily residences from the past because they lack the strength and high-quality craftsmanship that distinguish older structures.
Keep in mind that the loans mentioned above are just a few options when assessing your financing alternatives for a multifamily property. Additionally, equity partners who contribute funds in exchange for a cut of earnings may be used to finance multifamily properties.
Reach out to the staff at QC Capital if you are prepared to begin as a syndicated investor in multifamily properties.