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Many pundits will tell you to choose commercial or industrial property and steer clear of residential when investing, but there is a particular class of residential property that has a lot to offer – multi-family buildings, or apartment buildings made up of many units.
Many highly successful institutional investors have chosen to focus on these buildings because they constitute a growth area within property, which will benefit from natural demographic trends such as young people entering the workforce and older people downsizing – both these groups are on the lookout for simple, lock-and-go apartments.
What’s more, millennials as a generation tend to favour renting over owning their own homes, ensuring that these types of buildings remain in demand.
Another plus for investors is that the price of multi-family properties has grown significantly in the past 10 years due to a lack of residential space in many cities, ensuring the value of your investment increases, while apartment rental rates have also tended to outpace inflation, which means you are collecting more in rent.
One of the big advantages that residential has over other types of property is that even when the economy is under pressure, as it is now and during the great financial crisis of 2008/2009, people still need a place to stay, so it has a resilience other property types do not enjoy.
A challenge many property investors face is trying to create extra value to their investments, but when you own a block of flats, you can upgrade the units to, for example, reflect current trends and then increase the rent accordingly.
No matter how great your investment is, you must have a clear exit strategy and multi-family buildings offer three:
- You can package thousands of units together in many complexes and then sell them to a real estate investment trust (REIT) as a single consolidated asset.
- These types of buildings are perennially attractive, especially if the units have been renovated and the rent increased across the building.
- There is also the option to sell single units in the open market.
Despite the advantages offered by this kind of investment, it does have some historic barriers to entry that mean they are usually for the ultra-wealthy (who can do it on their own) or REITS (with the financial muscle of an organisation on hand), but online platforms like Wealth Migrate mean this style of investing is available to more people. Even if you are not a member of the elite 1% you can invest like the wealthy, but without paying the wealth-sapping fees.
Property has been shown to be an excellent way to create wealth and multi-family buildings are an excellent way to get into the property game.
