Whether you’re a seasoned investor or a newcomer testing the waters, you’re probably already aware of some of the benefits the real estate market can offer. It’s not uncommon for real estate investors to start out with Single Family Rentals that bring passive returns. But what about another option?
Multifamily real estate offers an exciting opportunity for investors of all backgrounds to diversify their investment portfolios. Moreover, factors such as population growth1, migration to urban2 areas, and consistently rising rents3 make multifamily investing an ideal option for many investors looking to stay ahead of some trends for 2023 and beyond.
In this article, I’ll give you a quick overview about multifamily investing in 2023. We’ll explore how many factors are shaping the way investors approach this sector of real estate investing. With this handy guide as a starting point, you’ll be equipped with the knowledge to start a discussion with your investment advisor about whether or not multifamily investing makes sense for you and your investment goals!
What Is Multifamily Investing?
Imagine owning a property that houses multiple rental units that all work together as a part of a cohesive whole to generate stable rental income streams. This is what we call multifamily investing and it stands in stark contrast to single-family investing, which involves properties that house a single unit’s worth of tenants.
Essentially, multifamily investing is a strategy that involves acquiring properties made up of two or more residential units, including apartment buildings, duplexes, condominiums, and 2-4 unit properties, as opposed to Single Family Rentals (SFR). Instead of relying on a single occupant to generate rental income, investors can have multiple income streams — all from units housed within a single location.
When compared to single-family investing, multifamily investing comes with a slew of potential benefits, including:
Perhaps one of the best features of multifamily investing is the potential for added diversification to your real estate portfolio. Even if you’re managing single-family properties, you can add multifamily investing to your investment strategy to hedge against the potential pitfalls of Single Family Rentals — while simultaneously enjoying the advantages of both. These benefits should analyzed on a case by case basis and should always be discussed with your investment advisor before committing funds.
As the demand for housing continues to rise, multifamily investing can help boost rental income and appreciation, offering investors a double win.
Multifamily Investing 2023: What You Need to Know
Now that you have a solid understanding of multifamily investing, you’ll need to be aware of some of the current trends for multifamily investing and some that may pose a challenge for those looking to get into multifamily investing in 2023.
- Rising Rents. Rents have been steadily increasing year-over-year, with a 4% growth projected nationally for 2023. Even with multifamily rent increases expected to slow to around 1% growth in 2024 because of high interest rates, rent prices are continuing an upward trajectory.
- Population Growth and Urbanization Increase Rental Demands. The US has been on a path of rapid urbanization over the last decade, with a 6.4% increase in the nation’s urban population from 2010 to 2020. Urbanization shows no signs of slowing down with some estimating that 83% of the US population will live in urban areas by 2050. Multifamily housing is a popular option for urban renters: about 67% of all multifamily development occurs in large metro areas and 27% in smaller metro areas.
- Interest Rates Are Expected to Keep Rising. While some experts expected interest rates to decrease through 2023, the US economy has had other plans. Mortgage rates continue to rise, even after a short period of marginal decline in the first half of 2023. This indicates a stable demand for rental properties like multifamily units as interest rates continue to negatively impact home affordability.
- Debt Market Difficulties. Current interest rates are high, which has the potential to really diminish investment opportunities, especially in areas that are heavily reliant on the massive rent growth over the last few years. This has made it difficult to buy real estate in some markets and with investments that rely heavily on value-add or opportunistic upside. However, in areas less reliant on massive growth or value-add and opportunistic upside, many investors have the potential to obtain debt terms that still make investments feasible.
- Rapidly Increasing Multifamily Supply. Many of the aforementioned factors, like urbanization and high interest rates, offer no relief from barriers to home ownership. Because of this, builders are putting up hundreds of thousands of multifamily units nationwide, with some forecasting more than 700,000 new units to be completed over the next two years. Such construction is occurring in areas that have seen the most significant post-COVID population growth — as those relocating need access to housing and multifamily units are filling that role.
Although current economic headwinds, like inflation, rising interest rates, and slowing rental growth rates are causing nationwide challenges, there are still ways for investors to work around these challenges and use certain economic aspects to their advantage.
For example, while now may not be the best time to purchase new real estate, multifamily investors can work to improve or renovate properties they already own. Such improvements can increase the cash flow from existing investments rather than purchasing new ones. By making such capital expenditures, investors don’t have to pay for new properties with high cap rates that could also be saddled with high debt costs.
Another way investors can still reap the benefits of multifamily investing in 2023 is to use a real estate investment firm as a passive investment vehicle instead of taking the burden of property management on themselves. Firms like Canyon View Capital are well-equipped to overcome the current economic hurdles because we offer multifamily investment properties in growing and stable markets that we acquired before interest rates skyrocketed. When development projects are complete, the new buildings could cost less than buying an existing building but still offer investors the advantage of rising rents and increases in wages with the potential for less cost of debt.
Moreover, investing in multifamily real estate through a professional third party means you won’t need to worry about the logistics of property management but may still earn passive returns.
Canyon View Capital Makes Multifamily Investing Easy
When making an investment decision, it’s important to consider all of your options before committing to one. Even with some of the hurdles we’ve seen this year, multifamily investing in 2023 is still an excellent option for many investors looking to diversify their investment portfolios. At CVC, our professionals have been managing multifamily properties for over 40 years.
That experience gives our team members a comprehensive understanding of the ebb and flow of the rental market — and we’re eager to pass on those benefits to investors that partner with us. Our multifamily investment options offer investors a path toward the same passive returns they can expect from managing rental properties in stable markets without having to worry about the time, resources, and energy required to keep them running.
All it takes is a conversation with one of our professionals to help you decide if our multifamily investment options are right for you.
Ready to learn more about multifamily investing in 2023?
For over 40 years, CVC has managed, owned, and operated real estate now valued at over $1B4 (based on aggregate value). Our buy-and-hold strategy, focused on America’s heartland, is designed to provide consistent investment returns. If you’re new to real estate investing but keen to get started, CVC’s portfolio provides an easy on-ramp.
1U.S. Urban Population 1960-2023. https://www.macrotrends.net/countries/USA/united-states/urban-population. Datasource: World Bank datatopics.worldbank.org/world-development-indicators/ Retrieved 2023-05-25.
2Barrett, Kristina.”Nation’s Urban and Rural Populations Shift Following 2020 Census.” https://www.census.gov/newsroom/press-releases/2022/urban-rural-populations.html. Updated 3/10/23. Accessed May 26, 2023.
3U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Rent of Primary Residence in U.S. City Average [CUUR0000SEHA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CUUR0000SEHA, May 26, 2023.
4$1B figure based on the aggregate value of all CVC-managed real estate investments as valued on March 31, 2023.
Eric Fisher, Chief of Staff
Eric joined Canyon View Capital in August 2021 with 15 years of hotel management experience grounded evenly between Property & Corporate Operations, and Business Development & Acquisitions. After $500M+ in hotel acquisitions, Eric uses his nuanced understanding of the acquisitions and transitions processes to support CVC real estate investments. His professional versatility makes Eric an invaluable resource for the President and Executive Team in all business functions, including Investments, Operations, and Strategy.