Market analysis is an important part of real estate investing. We use market data to examine the supply and demand factors for a certain kind of real estate. When considering investing in a specific multifamily property, market analysis is used to determine the kind of cash flows that can be expected on a particular property. The demand must be high enough to generate cash flows that provide a rate of return high enough to make the investment profitable. It is important to understand the growth trends for the particular city you are looking at. Then, it’s important to consider the major industries in the market area and the forecasted growth for those industries over the next few years.
Supply & Demand
Real estate cycles are prolonged periods of supply/demand imbalance. Building a new multifamily property or even updating it can take a great amount of time, and although the market was at equilibrium when you embarked on the project, that may not be the case as you are finishing the project and embarking on leasing your property. In a weaker market, you’re forced to lower rents and offer concessions. This won’t last forever, as you begin to see an increase in occupancy. The good news is that real estate markets are always cyclical. So if you are experiencing low demand when your multi-family property is ready for occupancy, it is only a matter of time before you will see a new upswing.
Population Trends
Recent studies have shown that more than 40% of all households are made up of less than 2.5 people. And while that may sound like a bizarre statistic, it is incredibly relevant because even just 10 or 15 years ago, the average household was between 4 and 5 people. With smaller families and the the increase in minimalism lifestyles, we are seeing that now, more than ever, people are looking to rent instead of buy and they are much more likely to live in less space than ever before. This is great news for the multi-family circuit! It makes it easier than ever to rest assured that your property will make occupancy and that in addition, the tenants in your building are much more likely to sign long-term leases.
We are also seeing that the U.S. median household income hovers around $59,000. Which means that the bulk of the housing need is squarely within workforce housing and not luxury units. And while the current generations are looking for some luxury amenities, they would rather pay for less luxury in their housing and more in their recreation. Again, great news for those of us who are looking to get involved in add-value properties in the B and C class.
If you are interested in multi-family real estate that focuses on add-value property South Eastern United States, head to our home page and tell us a little about yourself. We are accredited investors who are always looking for new acquisitions and partnership opportunities.
