Need to Improve Investment Income Stability? Consider Multifamily Properties
Posted By: Boston City Properties
In the wake of the coronavirus pandemic, investors across the world are scrambling to avoid losing their shirts. More than ever, then, diversification is crucial when it comes to investing effectively. As businesses across Boston and the country abruptly downsize or even shutter their doors, they leave vacant, previously income-generating properties in their wake. However, people who rent homes still need places to live – and those who own multifamily properties have been able to weather this storm better than many for that very reason. Read on to find out why investing in multifamily properties is such a smart move.
Most investors understand the importance of diversification, but the manner in which they diversify their investments can have a huge impact on long-term stability. Those who primarily rely on the stock market might opt to diversify by investing in a variety of investment products; however, during times of major upheaval – like the emergence of a worldwide pandemic – they can see gains across the board disappear overnight. This is why many opt to diversify even further by purchasing commercial real estate. Typically, that’s a smart move. In today’s economic climate, however, relying solely on things like office buildings is short-sighted.
By adding multifamily housing into the mix, investors can draw from and rely on another income stream entirely – one that is made up of rental income from individuals who will always need a place to live regardless of what the market is going. In some areas, of course, multifamily housing is a hit-or-miss proposition. In a place like Boston, however, it’s more like a can’t-lose one. As the hospital capital of the world and home to a vast population of university students, professors, researchers and other often transient folks, Boston is one area where demand for rental housing never wanes.
While there are drawbacks to owning and managing multifamily properties, there are also many considerable perks. In particular, in the world of commercial real estate investing, multifamily offers the most competitive rate of return. On average, these properties generate an annual rate of return of around 9.75 percent, which should pique the interest of any respectable investor. Volatility rates tend to hover around 7.75 percent, reflecting the reliability of this investment type. That stability comes mostly from the fact that while businesses come and go seemingly overnight, individuals don’t tend to abandon their homes.
A few reasons to consider investing in multifamily even in the midst of the pandemic include:
- Millennial Demand – Millennials constitute the largest generation in history, and they also represent a vast change over previous generations in terms of how they use and view housing. While the national homeownership rate is around 64 percent, only 31 percent of millennials between the ages of 25 and 29 own homes, and only 45 percent between the ages of 30 and 34 do. Boston attracts vast populations of millennials thanks to its educational institutions and thriving biotech and other markets – and those millennials value mobility and flexibility over all else, so demand for multifamily housing will continue to be strong for the foreseeable future.
- Baby Boomer Demand – Counterintuitively, members of the baby boomer generation are increasingly turning to renting over home ownership. From 2009 to 2015, the biggest shift from home ownership to renting occurred among those aged 55 and over – folks who belong to the baby boomer generation. For many baby boomers, renting offers a hassle-free lifestyle, and many buildings offer extensive amenities that make renting even more worth it.
- Demand for Workforce Housing – With luxury apartments and condos dominating the housing market in Boston, demand for workforce-priced housing, which is geared toward households earning between 60 and 120 percent of the median local income, is stronger than ever. By investing in a multifamily property and gearing the units toward the workforce market, you can quickly fill vacancies and enjoy a steady, reliable stream of rental income in no time.
- Shorter Leases – Unlike with commercial leases, which can span several years or even a decade or more, leases for multifamily homes tend to be much shorter. As a result, there are far more opportunities for raising the rent to keep up with market conditions. Therefore, investors are less likely to end up with properties that generate less income than they should.
Unlike things like stocks, multifamily housing is a tangible asset that isn’t as vulnerable to the whims of the market. In a city like Boston, investing in multifamily housing makes all kinds of sense and can be one of the best ways to not only diversify an investment portfolio but to protect it during unforeseen crises like the COVID-19 pandemic. If you are interested in acquiring a multifamily property in Boston or elsewhere in Massachusetts, Boston City Properties can help. Contact us today for more information.