With millions of Americans unemployed and uncertainty hanging over the economy midway through 2020, eyes are turning to investing in the multifamily market. This is not unexpected, as apartment assets performed more consistently than many other asset types during the previous recession.
As new signs of economic volatility encourage investors to reassess their options, we identified four reasons why multifamily properties continue to make a compelling case for investment, even when stacked up against other rental assets like single-family homes.
Predictable Cash Flow in Unpredictable Times
Rent collection at multifamily properties has been impacted far less than expected by the recent pandemic.
According to National Multifamily Housing Council (NHMC) Rent Tracker, 80.8% of renters have made their rent payments through June 6. This compares favorably to the 80.2% of renters that paid rent through the first week of May and is just below the 81.5% of renters that paid rent during this period last year.
Multifamily properties also boast a unique advantage over other property types in that the assets are rarely fully vacant. Even during times of unique financial distress, multifamily properties continue to provide partial or near-full cash flow. In the case of single-family properties, any vacancies will cause cashflow to immediately pause.
Managing Fewer Properties Helps to Control Costs
During these times of uncertainty, it is even more essential that investment strategies be efficient and driven by a clear vision. Multifamily properties compare favorably to single-family assets in this regard because the challenges of operating at scale are simplified. Investing in a multifamily property requires negotiating one loan, dealing with one management and maintenance provider, and complying with one set of local ordinances.
Additionally, managing a single multifamily property allows investors more flexibility to respond to changing markets by making strategic improvements. Better yet, timely investments made to enhance the property can be appreciated collectively on all units.
Recession Woes Could Stoke Further Demand for Class B and C
Prior to COVID-19 there was already a significant demand and need for workforce housing, most associated with Class B and C properties. Demand for these assets could further intensify, as nationwide social distancing efforts have slowed construction of new Class A apartments while simultaneously driving major job losses.
Furthermore, as the pandemic continues to wreak havoc on the economy, more renters may seek out the flexibility offered through shorter-term leases. Multifamily properties offer the greatest flexibility in regarding a variety of lease types and terms while allowing rents to keep up with market values and costs.
Financing Opportunities Through Fannie and Freddie
Working with Government Sponsored Enterprises (GSE) allows multifamily investors to take advantage of unique, important financing opportunities. Fannie Mae DUS Small Loans programs and Freddie Mac Small Balance Loans are designed for long-term multifamily investment strategies. The loans typically are offered through these program range between $750,000 and $7.5 million depending on the market and the value of the property.
Financing is another area where multifamily offers advantages over other property types thanks to several specialty property loans, including those offered by Fannie Mae and Freddie Mac. These advantages include:
- Borrowing on multiple units with single loan
- Interest-only opportunities
- Second mortgages
- Options to decline prepayment
- High-leverage points
- Hybrid ARM and Fixed-rate options
- Longer-term lending programs available – up to 30 years
- “Rate hold at application” (Freddie Mac)
- No bank-compensating balance or deposit requirements
Regardless of size or asset class, proper due diligence is the first step in multifamily investing. It is important to partner with a qualified lender who provides the best solutions after taking the time to understand your needs and goals.
Berkadia’s team of advisors can provide unique insights into Fannie Mae Small Loan programs and Freddie Mac Small Balance Loans. Considering partnering with our experts to maximize promising multifamily opportunities.