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Multifamily Minute Reader Reflections: The Best Approach for Investing in 2023
We surveyed our 40,000 subscribers to see if investing in upgrades or purchasing properties is the way to go this year.
In our Jan. 17 Multifamily Minute email, we asked our approximately 40,000 readers where they felt the best place to invest was for this year: whether by upgrading existing properties or by buying one or more apartment buildings.
Buying new apartment communities was the clear winner, with just shy of 75% of total responses. About a quarter said they were planning for no major acquisitions or expenditures. Interestingly — almost no one said they were planning to do renovation work as part of their multifamily investment strategy.
View the full table of results below.
Type of Investment
Percent of Respondents
Acquiring one or more properties
Renovating units or common areas
Replacing major parts of a building
No major acquisitions/expenditures planned
Lack of Upgrades?
As much as I'd love to talk about the large cohort of investors seeking new properties, I think it's more interesting to look at the area most of our respondents stayed far, far away from: major improvements and upgrades.
I believe there are a few reasons for this. Let's explore them all below.
1. Value-Add Investments Are Riskier
This one's true, broadly speaking, and most investors look to decrease their risk profile with an impending recession. Further, implementing some long-overdue improvements on a dated property may not always hit the investor as their particular investment strategy — to many, it's just how you should responsibly own and operate any apartment building.
2. You Can't Always Anticipate Major Expenses
It's not too surprising nobody said they were planning to replace a major part of a building in the survey. After all, if you have to replace a building's roof, you're going to do that — not first figure out if it's the best type of investment strategy for your property. Though, pro tip: It is. It's super challenging to rent units that don't have a roof.
3. Acquisitions Are More In Focus
Finally, many of our respondents aren't likely summarizing their multifamily investment strategies with a single choice. It's far more likely that every investor — especially those who own multiple assets — will tick all of the boxes above to varying degrees.
That said, acquiring a building is generally a far larger investment than renovating some common areas or replacing an HVAC system. It makes sense, then, that few would tick this box as their highest priority.
Really, that last one's on me. I should have let the survey take multiple answers.
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Our Previous Survey
In case you didn't see it, last week we asked our readers what types of markets they're targeting for investment this year. Read our analysis of the results.
What are the best strategies for investing in multifamily real estate in 2023?
The best strategies for investing in multifamily real estate in 2023 will depend on the market conditions at the time. However, some strategies that have been successful in the past include:
- Researching the local market and understanding the trends in the area.
- Investing in properties with strong cash flow potential.
- Taking advantage of low-interest rates and loan products.
- Working with experienced professionals to ensure a successful investment.
What are the advantages and disadvantages of investing in multifamily real estate in 2023?
The main advantage of multifamily investing in 2023 is that it provides investors with the opportunity for a steady stream of income. With this type of investment, investors are able to rent out the units to tenants and receive a consistent, ongoing return on their investment. Multifamily investments also offer the potential for a higher return on investment than other types of investments, including single family homes, with less risk.
Multifamily properties also perform better in a recession. While different assets across the quality spectrum will behave differently, people always need a place to live. As multifamily homes generally have lower rents per unit than a single-family home, occupancy generally tends to hold steady even in a downturn. One exception to this, of course, is if a property is overpriced or in a state of disrepair.
The primary disadvantage of multifamily investing is that it requires more capital upfront than other types of investments, apart from other, large commercial assets. Multifamily investments often require a larger down payment than other types of investments, as well as larger monthly mortgage payments.
Additionally, multifamily investments can require a significant amount of time and effort to maintain, as tenants must be screened and managed, and repairs and upgrades must often be made to keep the units in good condition. While a property management company can help with all of these operational aspects, this comes at an additional significant cost.
Finally, multifamily investments can be subject to a number of legal and regulatory issues, such as zoning and landlord-tenant laws. Investors must be aware of applicable laws in their area, and may need to consult with an attorney or other legal expert before investing in a multifamily property. Additionally, investors may need to obtain the appropriate licenses in order to rent out the units, which can add to the complexity and cost of multifamily investing.
What are the most important factors to consider when investing in multifamily real estate in 2023?
When investing in multifamily real estate in 2023, the most important factors to consider are the local market conditions, the current and projected rent growth, and the availability of financing.
The Top 5 Markets for Multifamily Rent Growth in 2023 article provides an overview of the current market conditions and projected rent growth in the top 5 markets. It also mentions that investors with floating-rate debt will continue to face pressure, so it is important to consider the availability of financing when investing in multifamily real estate.
The Multifamily Minute Reader Reflections: Where's Best to Buy in 2023? article provides an analysis of the results from a survey about the biggest challenges in finance for multifamily investors this year. This can provide insight into the availability of financing and the challenges investors may face when investing in multifamily real estate in 2023.
What are the potential risks associated with investing in multifamily real estate in 2023?
Investing in multifamily real estate in 2023 could come with some risks, such as higher interest rates with softening occupancy and rent growth. Investors with floating-rate debt will continue to face pressure, especially if vacancy rates jump. Additionally, our survey results showed that some investors are uncertain about the market in 2023, so it's important to do your research and understand the potential risks before investing.
What are the most profitable markets for investing in multifamily real estate in 2023?
The most profitable markets for investing in multifamily real estate in 2023 are San Jose, New York, Tampa, Miami, and Charlotte. According to this article, these markets are projected to have the highest rent growth in 2023, ranging from 3.6% to 4.9%.
Investors should consider the type of loan they use when investing in multifamily real estate. Floating-rate loans may be more attractive in the short-term, but fixed-rate loans may be more beneficial in the long-term. For more information, check out this article.
What are the best ways to finance a multifamily real estate investment in 2023?
The best ways to finance a multifamily real estate investment in 2023 depend on the investor's goals and the property's characteristics. Generally, investors can choose from traditional bank loans, Fannie Mae and Freddie Mac loans, bridge loans, and private money loans. Each of these loan products has different terms and conditions, so it is important to understand the details before making a decision.
Traditional bank loans are typically the most common type of loan used for multifamily real estate investments. These loans are usually long-term, fixed-rate loans with terms of up to 30 years. The interest rate is usually based on the prime rate plus a margin, and the loan-to-value ratio is typically around 75%.
Fannie Mae and Freddie Mac loans are government-sponsored loans that are available to qualified borrowers. These loans typically have lower interest rates than traditional bank loans, and they can be used for both purchase and refinance transactions. The loan-to-value ratio is usually around 80%, and the terms can range from 5 to 30 years.
Bridge loans are short-term loans that are used to bridge the gap between the purchase of a property and the permanent financing. These loans typically have higher interest rates than traditional bank loans, and the loan-to-value ratio is usually around 65%. The terms of bridge loans can range from 6 months to 3 years.
Private money loans are loans that are provided by private lenders, such as individuals or investment groups. These loans typically have higher interest rates than traditional bank loans, and the loan-to-value ratio is usually around 65%. The terms of private money loans can range from 1 to 5 years.
It is important to understand the details of each loan product before making a decision. Each loan product has different terms and conditions, so it is important to do your research and find the best option for your situation.