Updated: Sep 8, 2021
It is no secret that the real estate market is performing strongly, despite the fear and unknown of COVID-19's impact back in March of 2020. Both multifamily and the single-family real estate markets are on fire, and prices are continuing to increase at a significant rate. In almost every market in the United States, home values are appreciating at rates that we have never witnessed before. The average US home is up $33,000, according to Realtor.com, showing a $63,000 increase since the beginning of the pandemic in March of 2020.
Recently, Blackstone acquired a single-family rental firm, Home Partners of America, for an astounding $6B that owns about 17,000 homes. Blackstone is known for not only following trends, but acting as a catalyst for initiating them on a large scale. After the great recession, they purchased distressed single-family homes, renovated them, and created significant profit by renting them out through a company called "Innovation Homes". This is significant in today’s market, because when institutions begin to add or significantly increase single-family homes into their portfolio, this has a tremendous impact on not only the average Joe looking to purchase a home, but also alternative investment asset classes, such as multifamily. It will likely come as no surprise to you that multifamily assets are also in Blackstone’s portfolio.
While I have chosen to specialize on the multifamily sector, the single-family sector most certainly does impact multifamily investing, in this case, for the better. As the single-family market remains hot, the multifamily market will benefit. In this article, I will describe what the benefits are to investing in multifamily now, my personal experience with the two intersecting, and where I believe the trend is headed in the future.
Benefits of Investing in Multifamily
The trend of single home prices being higher than ever before may be intimidating or even misleading for some multifamily investors, but this is only if you don’t look at the benefits. Though the single-family home market is hot, there are actually fewer homeowners purchasing them.
One factor for this is simple - even if you were to sell your home for above-asking price, where do you go next? Prices have increased significantly, and for many, much or all of their return on investment from their previous home is lost in the purchase of the next. Combine that with the fact that single-family home buyers are also now having to compete with the likes of Blackstone and other institutional buyers, and the options become even more limited as institutions begin to seize more and more of the market share.
Another factor challenging home buyers are lenders. Although interest rates remain relatively low, lenders are making it even harder to purchase a more expensive home. Due to past mistakes that led to the recession, lenders are especially careful when a market is doing well. Many lenders are now basing their loans off the valuation price, not the purchase price. With prices at historical highs, this means buyers need to bring additional funds to the table to secure the home. This is making it harder for people to both afford and qualify to purchase a new home.
My Experience with the Market
Currently, my company, Blue Lake Capital, has properties in Texas, Florida, and Georgia and we continually evaluate new deals every day. I am a huge believer in Class B assets that are in solid areas. Once we acquire a multifamily property, we renovate the units and add amenities that justify increasing rents. Thankfully, we have been consistently exceeding our projections. Currently, our portfolio averages an occupancy between 90-95%, and we have been able to push rents up by 10-20%, even throughout COVID. Since the demand for apartments is so strong and continues to be on the rise, we are consistently seeing increased foot traffic at our properties, and renters quick to move-in due to rents increasing nationwide. Yardi Matrix most recent survey of June 2021 shows an incredible 6.3% increase in asking rents, year-over-year, and is the “largest YOY national increase in the history of our data set.” This is one of many reasons multifamily investments are so attractive to investors.
Where the Market is Going
Though no one can be certain where the market is going, as a self-proclaimed “Nerd”, I am always closely monitoring data and trends, and using that information to adjust my investment strategies in real-time for optimal results for my company and our investors. I believe single-family home prices will stay high for the next 12-18 months until the real estate market corrects itself. In the meantime, this is great news for multifamily investors, as the demand for multifamily housing will continue to increase.
The single-family market is hot, and seemingly only getting hotter for a time to come. However, for multifamily investors, this is actually good news. The sharp rise in single-family home prices, as well as institutional buyers such as Blackstone’s recent $6B acquisition of a single-family home portfolio, means the rate of individual homebuyers is actually decreasing. This is because not only are home buyers now having to compete with institutional buyers but also because the supply is even more limited for purchasing new homes. In addition to institutional buyers taking over significant portions of market shares, home buyers are struggling to qualify with newer and more stringent requirements by lenders. Furthering the challenges for home buyers is prices, which due to the demand and competitive nature of the current market, are at a historical high. In my opinion, this trend will continue for a likely 12–18-month period until the market corrects itself. For now, and the foreseeable future, this means multifamily investing will only continue to perform strongly and likely thrive in great demand. If you have not yet incorporated multifamily investments into your portfolio, it’s an excellent time to do so.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale, a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.