There is no gain in saying that the coronavirus has not altered life as we knew it. Everyone and everything has had to make some form of concession. Governments, big corporations, and institutions in various sectors halted their plans, while the individuals have taken shelter in their homes. This momentary pause disrupted the economy, pushing our country closer to recession than ever. In the face of this reality, the big question real estate enthusiasts ask is, “multifamily housing still a viable investment after the pandemic?”
Based on forecasts and past performance, multifamily housing performs decently during the recession. In this case, it is expected to perform well post-pandemic. This article will look at six practical reasons why the multifamily property is the most robust asset class during and after the pandemic or any other time.
Six reasons why multifamily housing will remain a viable investment after the pandemic
1. Multi-family housing is a basic need
Housing is and will always be a fundamental human need. According to Abraham Maslow’s hierarchy of needs, shelter is a base level need. It is almost as important as food. Although demand and rent can rise and fall or become stagnant, the reality is that there will always be a demand for multi-housing property.
A recent study by the National Multifamily Housing Council supports this statement. According to the NMHC survey of 11.4 million units of legally managed properties across the country, 93.3% of multifamily apartment households paid rent as of May 27, and 89.2% of tenants paid rent in April.
This statistic lends credence to the fact that rent may fluctuate, but demand always remains. Contrastingly, other commercial property types (offices, industrial, retail, hospitality) saw a sharp decline in the rent. Rent collections held at 75% in March but fell to 47% in April and 44% in May.
In summary, people will always need a place to stay regardless of the economic conditions. Moreover, the cost of renting a multi-family apartment fits an average budget. This makes investment in multi-family housing a smart choice even in poor economic conditions.
2. Multifamily loans are available, and the interest rates are lower than ever
Although the pandemic has made lenders adopt a stricter standard for value-to-loan ratios and reserves, interest rates remain low. Reports show that you can secure a multifamily loan at 3% interest rate. This rate gives you enough room to make a profit on your investment while servicing the loan.
3. Economies of scale
In terms of cost reduction and profit maximization, a multifamily property is more affordable to manage and offers a higher return. The overall management and maintenance cost is distributed evenly among the tenants. For example, operational costs like security or roof repairs are shared by the occupants, unlike single-family property.
4. Tax relief
The importance of tax relief has never felt better than now. The government considers multifamily properties essential for the wellbeing of US citizens. Multifamily properties fulfill the government’s responsibility of creating adequate housing for citizens.
So the government encourages multifamily property owners through different tax laws. Notably, the depreciation tax law that allows homeowners to deduct a calculated amount of money generated from rent to cover for depreciation of property value.
Under the current tax law, multifamily homeowners are allowed to take a percentage of the rental income to finance debt. There are several ways to leverage tax deductions, incentives, and grants provided by the government for multifamily property owners. If you want more insight, chat with an asset manager.
5. Higher cash flow potential
Add cash flow potential to the reasons why investing in multifamily post-pandemic is a smart decision. With a multifamily property, you can add several amenities to create a steady positive cash flow. For example, you can open a laundry mart, a mini-mart, and more.
Tip: The amenities should be suited to the demography of the property. For example, if the families have pets or kids, you can offer a pet walking service or babysitting service.
The high cash flow potential of multifamily assets makes it a better choice than single-family units. With a single-family unit, you risk long spells of total cash dry up when your tenant vacates the property. In contrast, a multifamily property will keep churning out cash when a tenant vacates a unit in the property.
6. Greater Management of House Value
A multifamily property has better insulation from price swings or market changes compared to a single-family property. The reason is that multifamily assets are somewhat commercial assets. They appreciate over time and are more resilient to economic downturns than other forms of real estate investments.
Multifamily properties are run as small businesses with several departments generating income. Companies are valued based on profitability; similarly, the worth of a multifamily asset depends on its gross operating income.
For example, if your multifamily property has several amenities that generate cash flow while keeping maintenance costs down, it will be priced higher.
The bottom line is that you can improve the value of a multifamily property by adding simple amenities to increase income and drive down expenses. So the state of the market does not entirely determine how much you sell your multifamily property.
Multifamily assets will remain stable during and after the pandemic for the reasons stated above and more. Despite the volatility in other real estate asset classes, this is the best time to get a multifamily property and position for the economic rebound.
If you are a growth-focused investor, you should focus on exploring the economic opportunities these events create. Crown Capital can guide you through the hurdles of structuring your funds, searching and acquiring a property, and managing it for optimum profitability.
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