Our brokers and partners at DAC Developments receive hundreds of calls every year from real estate investors looking to diversify their portfolios by finding a new investment property that provides satisfying returns. As employees and business owners embrace the gig economy and hybrid work arrangements, more millennial and Gen Z investors want commercial properties that blend family living with easy access to grocery stores, excellent restaurants, and open spaces without costing a fortune. Multi-family residential real estate is the solution they’re looking for, and we will explain why in this article.
Multi-family residential real estate investing is slowly becoming one of the most preferred options for people who find the volatility of cryptocurrencies and the stock market unacceptable. Investing in real estate, especially residential properties, has long been a proven strategy for money managers and individuals who want a slow and steady ROI.
In this explainer, our experts will detail why multi-family residential real estate is an excellent choice for first-time investors and veterans with highly diversified portfolios. We’ll begin by explaining the nature of multi-family investing and what makes it different from investing in single-family structures and pure commercial properties.
Multi-family residential real estate refers to any privately owned building with numerous units that could house families, individual renters, or tenants. Apartment complexes, townhomes, duplexes, and mixed-use developments are its most common examples. Multi-family properties have been a staple in the apartment industry for hundreds of years, especially in highly urbanized areas where a few square feet can cost homebuyers thousands of dollars to rent or purchase.
According to the American Community Survey from the United Census Bureau, over 45% of American renters live in multi-family homes, 8% more than individuals and families who rent single-family housing. As more millennials reach their home-buying years, land prices in cities and suburbs are surging, and living space is now a more precious commodity. Multi-family residential housing makes more efficient use of square footage by stacking multiple units beside or on top of one another, giving investors a wealth-building tool that could provide bigger and faster returns.
Choosing an appropriate location for a multi-family development can be a real challenge for bootstrappers. Multi-family investments live and die by the access they provide their residents. A strategic location is the most important factor people consider when looking for a home to rent or purchase.
If a property will house mostly lessees and tenants, it is unlikely that they will be staying or operating out of the same building forever. Companies like DAC Developments will find strategic locations with the needs of stakeholders in mind so they can enjoy a steady stream of income from long-term tenants and prospective home buyers.
Nobody wants to deal with inner-city traffic or an extended commute to work. People want easy access to major highways, airports, hospitals, and shopping. Parents, students, and employees want to be near quality schools, friendly church communities, pet-friendly parks, and stops for public transportation.
Multi-family homes feature more amenities and better access to services people want, so you find more condominiums and apartments than single-family homes in urban areas. Suburbs and bedroom communities are also starting to feature more multi-family developments, and companies like us are right at the forefront. Real estate experts from DAC Developments review factors like area demographics and what future possibilities exist so we can give real estate investors more competitive returns.
Multi-family housing is one of the safest investments for first-time buyers, as November 2021 data from the US Census Bureau chart vacancy rates at 5.8%, one of the lowest in the history of the apartment industry. It’s one of the most popular tools that local governments use to encourage investments from developers so they can rehabilitate, develop, and densify their cities with productive individuals and working families. Whether you’re buying units to lease, sublet, or sell on the market for a higher price, ROI is almost always guaranteed, especially if you get them from a reliable developer.
A multi-family investment is significantly more expensive than a single-family property. Where a one-unit residential property could cost you as little as $45,000, a multi-family structure might require millions to model and build. However, multi-family investing is easier to finance because it provides more reliable cash flows.
If a lessee were to move out of your single-family property, you have a structure that is 100% vacant, whereas if a tenant moves out of your multi-family home, your portfolio only takes a 1% to 50% hit. Banks are more likely to approve loans for multi-family investments because of their lower risk profile. However, you might need to prove that you can pay it back yourself if tenants move out, which should not be a problem as new multi-family leases and renewals are steadily rising despite the previous pandemic, according to research data from Fannie Mae.
As one of the leading real estate developers in Chicago, we encounter many investors who do not particularly enjoy the management aspect of real estate investing. Looking after maintenance requests, rental applications, and filling vacant units requires a lot of patience, industry experience, and first-rate communication skills.
However, you can hire professionals to do these things for your multi-family property, allowing you to focus on more income-generating activities instead of shopping around for plumbers and electricians that offer sensible rates for minor repairs. These are chores that most single-family investors face every month.
No matter how many pandemics sweep through the world or how many countries declare war on their neighbors, people in urbanized areas will always want a safe place to live. Multi-family residential real estate is a solid investment strategy for stakeholders with minimal risk tolerances and long return horizons. Contact the DAC Developments team today by filling out a client information form on our website or dropping by our offices at 640 N LaSalle Dr #605, Chicago, IL 60654.