According to Joe Fairless, the future for multifamily real estate looks bright. Interest rates are predicted to rise, but it doesn't mean that property values will plummet. In fact, rent growth will be strong. Interest rates affect renters' willingness to pay premium prices. But in the next few years, income potential is expected to outpace price increases. This article will explore the key reasons why you need to be investing in multifamily real estate in 2022.
In addition to a general slowdown, the multifamily sector is expected to attract increasing amounts of capital over the next five years. In addition, multifamily real estate will continue to be a stable asset class relative to other investment options. Additionally, the multifamily sector offers a good hedge against inflation. As such, a rising interest rate could have a positive impact on cap rates.
The Federal Reserve has signaled that it expects to raise interest rates on a continuing basis throughout the year. This action ended a two-year period of rate cuts. Rising interest rates will affect the availability of loans and property values, but they will likely slow the economy and eventually curb inflation. As such, investors should budget for higher rates when considering investments in multifamily real estate. But in the short-term, a higher interest rate can actually be a positive factor for multifamily investors.
The economy is benefiting from monetary stimulus, higher wages and consumer wealth, but there are some key headwinds for the sector. The most significant of these is inflation and a labor shortage, but most of these ramifications won't become apparent until 2023. Rent growth is expected to be strong in multifamily real estate in 2022, though it will be less than 5 percent this year, down from six percent last year.
Joe Fairless thinks that the multifamily sector is poised for a strong year in 2022, though the last two years have been difficult for investors. The economy is growing again, which is catalyzing household formation. Demand for rental housing will keep up with this new household formation, and the pace of new deliveries will match or surpass demand. At the same time, occupancy levels are projected to remain at 95% or higher for the foreseeable future. Net effective rents are expected to grow by 7% in 2022.
Several experts have broken down the current state of the housing market and their predictions for 2022. Although mortgage interest rates are historically low, demand for new houses is lagging. The recent rise in interest rates has caused owners to market deals earlier than normal. However, there is still a positive outlook for the apartment market. The rise in cap rates is still relatively low, with average rates at just 4.4 percent.
As mortgage rates rise, renters will remain renters. The interest rate premium will likely fall as a result. The multifamily market is expected to continue to grow at a steady pace through 2022, despite the rising cost of living. As long as renters can continue to afford their monthly payments, the price of an apartment will stay high. While there are downside risks to the current market, multifamily housing has historically held its value and is an asset class with a strong track record.
Unlike single-family properties, multifamily real estate is generally more profitable in the long run. You can also expand a multifamily property over time, increasing passive income. Also, multifamily properties are comparatively safe investments, despite the competition for investment properties in the market. While recessions are inevitable, multifamily properties weather the storm better than most real estate assets. In addition, they also provide an opportunity to make a positive impact on the community.
The income potential of multifamily real estate remains high even as the housing bubble sputters. Multifamily properties are particularly attractive to investors because of tax benefits. Tax relief from investing in multifamily real estate includes accelerated depreciation, tax credits for energy efficiency, investment deductions, and even deferred taxes through 1031 exchanges. And the tax benefits aren't limited to multifamily real estate.
An investment strategy for multifamily real estate in the year 2022 should consider the balance between risk and reward. The potential for tremendous returns in Class A assets located in urban markets is tremendous. While the recent pandemic has impacted some gateway cities, they should continue to see favorable outlooks in the short and medium term. However, they still have downside risk, due to migration patterns. In contrast, secondary markets will experience modest returns and a stable investment outlook.
Joe Fairless feels that there are three main types of multifamily properties that investors can consider when creating their portfolio. These include trophy assets, stabilized assets, and niche properties. Stabilized assets will require little work to be done by the incoming owner, and they will trade at low cap rates. Trophy assets are sought-after properties in their markets that are often in the most prominent locations. They also have high rent rates, and are typically held for appreciation.
Commenti