Multi-family real estate tends to be a little different than regular single-family properties when it comes to changing market conditions. If you are new to investing in rental income properties—especially multi-family properties—it is important to understand how past, present and future market trends may affect your investment. Here are a few factors to consider:
As home prices go up, so too do rent prices. People are paying more for their living situations, whether they are buying or renting. It makes sense because your multi-family property is worth more. It also means rentals are usually in higher demand because it’s harder for people to buy houses. That means you can charge higher rent prices. It’s smart to keep tabs on comparable rent prices in your market, so that you can set rent prices accordingly and raise the rent on existing tenants when appropriate. You want to find that right balance of having quality tenants and low vacancy rates, while still being able to earn as much profit as you can. You have to be smart and strategic about when and how much to raise your rent prices.
Prevailing mortgage rates can also have an effect on the rental market. Low mortgage rates will drive up buyer demand in the housing market because more people can qualify for mortgage loans. This may decrease rental demand to some degree, so you will want to pay close attention to your vacancy rates. One tricky aspect of multi-family real estate investing is managing multiple rental units at once. You want to minimize your vacancy periods and keep your properties occupied with good tenants. Also remember that lower mortgage rates also lead to higher home prices because the buyer demand is so high. You may be able to offset the lower rental demand with higher rent prices.
A seller’s real estate market is when the seller is in the higher position of power. Home prices are high, buyer demand is high and housing supply is low. Mortgage rates are usually lower during these periods, but not always. It’s mostly a matter of supply and demand. For a multi-family property owner, a seller’s market can still represent a good opportunity. Renter demand may be down some as people are looking to buy homes, but rent prices are usually up. This is what we experienced in the real estate flurry of 2020 and 2021 during extreme seller’s market conditions. Rent prices kept going up. That helped spark more buyer demand, but savvy multi-family rental property owners were still making great money from their units.
A buyer’s real estate market happens when seller inventory is high. Mortgage rates are also usually low. We experienced this after the sub-prime mortgage bubble burst in 2008 and the years following. Home prices were low and so were mortgage rates. Buyer’s markets are usually not as great for rental property owners as people are looking to move out of rental situations and become homeowners. However, people always need places to live. With the right pricing and marketing strategies, you should have no problem filling your multi-family property. Plus, these conditions are rare and we’re still a long way from the next true buyer’s market.
Lastly, let’s look at how new construction trends affect multi-family investment. By its nature, more new constructions means more housing opportunities in a specific market. There are more places to buy and/or rent. This affects existing rental properties in terms of competition, but also appeal. An older place may not seem as attractive to a renter as a brand new apartment complex that was just built. You will want to keep your multi-family properties in great shape and price your rent based on the housing availability in your market. Remember that new construction is also a sign of growth and prosperity for a community, and that can eventually benefit your investment properties in the long run.
Ultimately, multi-family real estate investment is a great way to build wealth and it’s more affordable than you might think. If you are wanting to get into rental property ownership or expand your real estate portfolio, consider the benefits of multi-family investments and see if it’s the right business idea for you.
For help with all your investment needs, including real estate investing, contact Illumination Wealth and work with one of our top financial advisors. Let us help you on your road to financial independence!