Buying a home, or getting into real estate investment, has a rather high barrier to entry for most people today. Housing prices have risen greatly compared to the average income, and many now rent or live with their parents instead of owning homes.
For the financially savvy, multifamily homes are the smart workaround. You can take out a mortgage and use the income from renting out additional units to subsidize payments. The expected rental income can even help you qualify for a loan.
However, this strategy has its drawbacks. It requires you to embrace the responsibilities and duties of a landlord. Working with professional property managers can smooth out those wrinkles, but at the end of the day, you’re still living right next door to your tenants. If they’re vocal about their complaints or disruptive in their behavior, you’re literally a stone’s throw away.
The good news is that multifamily homeownership stands to benefit from some long-term trends that make it even more sensible to combine multiple dwellings in one place.
The so-called Internet of Things has found its way into seemingly every facet of our lives in short order. We no longer blink an eye at the idea of having smart cameras installed to keep tabs on what’s going on inside our homes, even when we’re away. Controlling our appliances through a smartphone app is common practice.
The fuss about smart homes is real, and it’s set to become a difference-maker when it comes to the rental scene. 86% of millennial renters and 65% of baby boomers indicated they’re willing to pay more for an apartment outfitted with smart devices.
For the multifamily homeowner, the cost of deployment can be easily offset by the savings opportunities it creates. If you outfit every unit with a smart thermostat, moisture sensor, and security system, you have fewer worries when it comes to excessive energy consumption or tenants’ peace of mind.
Resilience in the pandemic
When the pandemic hit in early 2020, massive unemployment ensued, followed by a second-quarter recession. Every landlord held their breath for fear that tenants would be unable to pay rent or that vacancies would go unfilled.
Those problems would seem to be especially acute for multifamily owners. In particular, those who’ve banked on using rental income to pay for monthly mortgage costs would suffer. But though the downturn effect was significant, the multifamily sector actually weathered this crisis better than all others except industrial.
Thus, now that we’re in the swing of an economic rebound, the forecast is bright for the multifamily housing market. Rent is expected to increase by 6% in 2021, with vacancies returning to pre-Covid levels.
This resilience can be explained by several factors. During the economic squeeze, Class A assets were the most affected as young professionals would rather move back home or find more affordable housing. The rise of remote work and fears of coronavirus transmission also played a part in this willingness to seek other living arrangements, especially those away from expensive urban centers.
Moving forward, many of these trends seem set to continue into the new normal. The downtown market will be sluggish, but multifamily homes in suburban areas should continue to see strong demand. This dovetails with the aging of the substantial millennial demographic, as their lifestyle shifts away from urban living and toward more settled, less dense areas.
Preparing for climate migration
The effects of global climate change are already manifesting within our shores. Recent years have seen unpredictable, extreme weather events occurring with greater frequency and intensity. Wildfires and floods have already displaced people from their homes in record numbers.
The projections suggest that in the southern half of the US, 1 in 12 Americans will be forced to migrate for climate reasons within the next half-century. And when people move, there are push-and-pull factors in operation. If climate makes an area unlivable, pushing them out, they’ll start looking for places to live that offer more desirable conditions.
The pull of an area includes better employment and services, environmental conditions, and overall stability. And housing costs will definitely figure into the considerations of the climate migrants of our future.
Multifamily homes can offer units in the Class B or C asset range, which are the perfect entry point for most people who need to relocate on short notice. Of course, the adage that it’s all about “location, location, location” still applies. But if your location is good enough for you to live in, it’s surely going to prove desirable to tenants fleeing the brunt of climate change.
From the short- to long-term, the outlook for owning a multifamily home, living in one unit, and renting out the rest looks good indeed.