Thursday, September 29, 2016

The Multifamily Category is Still Hot

When I look at the LoopNet list of the most-often viewed properties in Connecticut each week, I am struck by how many are multifamily properties  (and also about how few are ever industrial, where there is a big supply).  Week after week, thousands of people view residential investment rental properties.  Why the appeal, and why is it not waning?

I think that the appeal is like all of real estate--a tangible investment in a time of uncertain returns in many investment categories.  It also is the type of investment where those who are handy, or have some free time, can improve properties or cut expenses, and raise returns, something that cannot be done with stocks and bonds.

But won't the supply exceed the demand?  People don't think so, and that's coming from two ends of the age spectrum--millennials and seniors.  Millennials, with little desire for home chores or fixed commitments, and with a lot of educational debt, are renting in bigger numbers and for longer.  And downsizing older adults are no longer finding a stigma in rentals, so they are often selling big homes and renting in urban areas especially.  Since Connecticut has a very high average age, we have a lot of those people.  Also, professionals who move here to take jobs are renting much more often.  They are renting more everywhere, for the reasons above, but our state has a very high percentage of people who want to avoid what they see as an illiquid investment--an owned house--and high estate taxes, so they consider buying somewhere else, or keeping the house they had elsewhere, and renting here.

Will this continue?  It seems to be holding up for the present, even in New Haven, which has loads of new product coming on line.  It may well be that, at some point, those who are slumlords, or who have not reinvested in their properties, will be forced to lower rents or make improvements, in order to compete with the newer buildings, but even that hasn't quite happened yet.  So the interest in the segment continues. 

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