Multifamily investing provides numerous advantages over single family investing for the right operator. You can achieve economies of scale, rapid appreciation and reliable cash flow that is usually recession resistant. We are in somewhat of a perfect storm of opportunity for multifamily investors and asset managers. This is due to a number of factors, namely the housing shortage in the U.S., the lack of housing affordability and the shift toward more hybrid work being more common due to the Covid-19 pandemic.

But hey, don’t take my word for it, here is what John Sebree, Senior Vice President and National Director of Multifamily for Marcus & Millichap had to say about it

“We will likely see a fair amount of this—redevelopment and converting properties to apartments—over the next few years.That is the result of being in a housing crisis, and without new product being built at the same pace as demand.”

Let’s Look at Five Reasons Why We Love Investing in Apartments

1) Cash Flow

 During up and down markets, true non-phantom cash flow is very powerful. Multifamily is a great asset for generating consistent cash flow. Unlike single family where you only have one door, when you have multiple doors, the impact of a few vacancies on an 100-unit building is nominal compared to a vacant single family rental. Additionally, the consistent cash flow is the fuel that provides a steady stream of income for our investment partners and builds the foundation for strong backend equity

2) Fragmented Market

According to REBusiness Online, the multifamily investment sales sector had well-documented success in 2021 with a record volume of over $220 billion in transaction activity. The multifamily space has historically been very fragmented with large institutional buyers pursuing class “A” stabilized properties for cash flow while other niche operators have shifted focus to a value-add investing strategy – purchasing underperforming assets at a discount and seeking to capture hidden value through property upgrades and renovations. Upon improving the property, the operator stabilizes rent rolls and generates increased net operating income, then exits the investment by selling the property to another buyer – looking for a steady income stream – at a premium. This is the go to market strategy for Blue Arrow Capital. We seek value-add investment opportunities in emerging markets.

3) Stability

Many investors spend sleepless nights navigating the wild swings investing in crypto or the latest tech IPO on the NASDAQ. Personally, I don’t like assets where valuations can go up or down 30, 40 or even 50 percent in a matter of weeks. The stability of multifamily investments is one of its most appealing characteristics. This likely explains why pension funds, insurance funds and family offices continue to invest in  multifamily assets; apartments provide steady, predictable returns and smooth out the risk during economic boom and bust cycles. No matter where we are in the market cycle, the demand for housing remains a constant.

4) Tax Benefits

There are several appealing tax advantages to investing in commercial real estate.  Investors can participate in the depreciation of an asset.  In many cases, the the IRS allows accelerated depreciation by an accounting technique called cost segregation.  This strategy can increase immediate cash-flow and reinforces the concept of time value of money, the “idea that money that is available at the present time is worth more than the same amount in the future, due to its potential earning capacity”. The depreciation is recaptured when you sell the property, but it is taxed at a capital gain rate instead of the higher tax rates levied on earned income.

5) Quality Operators Win

Multi-family assets controlled by good operators will weather good and bad economic cycles. This was demonstrated during the Covid-19 pandemic when marginal operators were exposed by the economic downturn and eviction moratoriums, leaving them with properties that were underperforming and at risk. Quality operators can pivot and pull strategic levers to reduce economic vacancies, cut expenses or improve resident profile.  We believe multifamily properties are great hedge against inflation and offer a risk/reward profile that is more favorable than many other investment vehicles.