The investment outlook for multifamily properties in 2023 is good as steady occupancy and high rents gives landlords of multifamily properties a reason to look forward to 2023.
By Lazer Sternhell, CEO
Short-term cash flow, long-term appreciation, and tax benefits have made multifamily properties an appealing option to investors for decades. As we approach 2023, however, the opportunity for investors has never been better.
Apartment buildings, duplexes, and triplexes are being snapped up by investors and renters alike. Here, I help explain why investors are jumping on this rising trend.
The investment outlook for multifamily properties in 2023
Last year, real estate and rental rates skyrocketed. The annual 20% increase for single-family homes put dreams of home ownership out of reach for most of the population. As droves of would-be home buyers turned to renting, affordable multifamily properties were in short supply. Thanks to the rising demand, rent climbed at least 10% in 65 of 150 large cities.
What’s more, increasing rent did not slow the steady stream of renters. In fact, the National Apartment Association found that the US occupancy rate rose to 96.5%, surpassing 2000’s record high. In essence, people are paying higher rents and staying in their apartments longer.
What does all this mean for you as an investor in multifamily properties? For one, the expanding pool of renters means low vacancy rates. Renters pounce on affordable units as soon as they open, and a steady stream of renters leads to stable cash flow. In the past, multifamily investors learned to anticipate months of vacancy in their budgets, but in 2023, the risk for that hazard remains low.
However, if you invest in multifamily in 2023, there are a few things to watch. Rising inflation is partly responsible for the windfall in rents, but it can have a downside for investors, too. As it drives up your operational expenses and repairs, you may pocket less of the profit. On the other hand, the benefit of short-term leases allows you to adjust rents to compensate for higher costs in labor and materials.
Remember, the increasing interest rates are driving renters to your door, but as an investor, they impact you as well. If you purchased investment properties with variable mortgages, prepare to account for those rates in your annual budget. In addition, if you are looking for properties, those rising interest rates make bargains in the multifamily market far more difficult to find. Deals will still be out there in 2023, but you’ll either need to do some digging to find them or you’ll need to refinance.
Investing in multifamily properties in 2023
The fastest and easiest way to jump on 2023’s multifamily investing trend is through real estate syndications. These companies provide a path for you to contribute capital toward multifamily properties without requiring you to manage them. As an investor, you can reap the rewards while putting in far less time and money.
Managing multifamily properties can be a full-time job. You are responsible for maintenance and upkeep on all the units you rent. Either you will do the plumbing, electrical, and repair work yourself or know who to contract for this. Investing in multifamily properties through a real estate syndication company allows you to put those potential headaches into someone else’s hands.
Real estate syndication companies also allow you to join the action with less of an upfront investment. Multifamily properties are a good value over time, but pricey to acquire. Duplexes cost as much or more than a single-family home, and you’ll need a 20% down payment on hand.
If you have the capital and the experience you need, owning your own multifamily property can offer a higher return. The process for investing on your own is nearly as simple and straightforward as buying your first home.
The economy and real estate market have been notoriously tricky to predict, but all signs point to a good year for multifamily investments. While experts say home prices and rent will continue to rise, they predict a slower climb over the next 12 months. Mortgage interest rates probably won’t climb but will remain high, locking out first-time home buyers for another year. While rental prices aren’t expected to hit the peaks of 2022, they are still rising year over year.
The combination of steady occupancy and high rents gives landlords of multifamily properties a reason to look forward to 2023. In the short term, your investment has the potential to be a great source of passive income. In the long term, it will likely continue to appreciate as other investors scramble to get in on the trend.
About the author:
Lazer Sternhell was intrigued by the potential of real estate early on, having grown up in a family of commercial real estate owners. Working for his family’s business in the mid-1990s, he gained invaluable knowledge while cultivating his natural talent for sales. Lazer went on to establish and run several successful businesses in other industries. His own familiarity with commercial spaces for his companies ultimately inspired him to enter the world of real estate from the brokerage stand point, and use the seasoned skills he had amassed to benefit his clients. Honoring his accomplishments and contributions, Lazer was awarded CoStar Power Broker status. Lazer lives in Rockland County with his wife and five sons.