The data strongly suggests that the renter revolution is not going to reverse anytime soon. The combination of rising rents and rising home prices makes it difficult for future home buyers to save for a down payment. None of this is surprising since renting is becoming more and more the long-term option for people of all ages.
U.S. rental market trends:
- Renting a three-bedroom property is more affordable than buying a median-priced home in 59% of U.S. counties according to ATTOM Data Solutions.
- Median rent nationwide is up to $1,440, making saving for a down payment harder and harder on homes that keep getting more and more expensive and out of reach.
- As of June of this year, U.S. rental prices accelerated for the ninth-straight month according to Zillow.
- Renting is more affordable than buying a home in the nation’s 18 most populated counties and in 37 of 40 counties with a population of 1 million or more.
- More than 36% of all U.S. households rent.
- The growth of the renter population is now outpacing the owner population.
What groups are the main drivers behind this renter trend? Baby Boomers, Echo Boomers (children of Baby Boomers or Gen-Xers) and Millenials are all driving demand as they all choose to downsize and live more simply.
In our renter nation, consumer appetite for multifamily properties is unprecedented with demand consistently swallowing up supply as soon as it becomes available.
Just look at the Net Absorption rate. In commercial real estate jargon, Net Absorption, in simplest terms, is the difference between the spaces newly made available (either by vacancies or construction) vs. the spaces newly taken up by tenants measured over a specific time period. Positive Net Absorption means more space was taken up than what opened up in the market.
There’s a good indication new construction is swallowed up as soon as it opens its doors when Net Absorption is positive. Rents typically rise in this scenario. Negative Net Absorption means that more commercial space was vacated/supplied in a particular market than what was leased or absorbed by commercial tenants. Under a negative Net Absorption scenario, rents tend to fall or cool down.
Positive Net Absorption in the multifamily class is the reason why so many investors are attracted to it.
In 2018, multifamily Net Absorption totaled a positive net of over 323,000 units even as development continued at a feverish pace. This means that new construction and newly vacated units are almost immediately snapped up as soon as they’re made available as evidenced by the low national vacancy rate, which continued down to a cyclical low of 4.6% last year. This demonstrates the strength of demand even as new development is added to the market. This is all because the U.S. has become a renter nation.
And nowhere is demand higher and more consistent in the multifamily class than in the affordable housing segment. Affordable multifamily housing has proven time and again that in a downturn, there is actually increased demand in the mid to lower levels. Nationwide data shows that affordable housing is consistently undersupplied and is not only recession resistant but thrives in a downturn. Since the Financial Crisis, the gap has steadily widened between demand and supply, leading to a shortage in the affordable housing sector making Class B and C properties ideal for steady income, rent growth, and appreciation.
How can the average investor without the capital, expertise, time, or knowledge get into the multifamily game?
The answer is leverage – supplementing your resources with outside resources to accomplish what is not possible alone. Passive real estate investing allows investors to leverage multiple resources to reap the benefits of multifamily investing without the barriers that typically prevent an individual investor from participating in this lucrative sector.
Private real estate investment funds are the perfect vehicle for the individual investor to passively invest in multifamily properties while enjoying the returns of an active investor.
The following are the types of leverage passive investing affords:
Expertise and Experience
Investors lacking the requisite knowledge or expertise can lean on the skill, experience, and knowledge of fund managers who have already learned the ropes and gone through the motions of learning to invest successfully in multifamily, so you don’t have to.
Time
By relying on a fund’s infrastructure and personnel, an individual investor can enjoy the cash flow from multifamily investments without dealing with the day-to-day management or headaches.
Diversification
Investing in a private real estate fund allows an investor to leverage a Fund’s diverse portfolio to achieve diversification without having to acquire multiple properties him or herself.
Capital
Pooling capital with other investors allows individuals to leverage the group’s collective resources to be able to invest in multifamily properties not possible alone.
By leveraging the opportunities passive investing through a private real estate investment fund affords, individual investors can invest in the lucrative and recession-resistant multifamily segment just like successful Ultra-High-Networth investors have been doing for years. The U.S.’s “renter nation” status appears to be here to stay, and with favorable metrics like high cap rates and high Net Absorption rates, there has never been a better time to invest in multifamily properties.
