Supply and Demand
Making Multifamily More Profitable Despite Increases In Supply
All real estate is local. Yet, while some markets seem in desperate need of more rental inventory to serve the demand, others are mounting up large amounts of new construction. How can landlords maintain and even increase the profitability of multifamily rental assets, even where thousands of new units are coming to market?
Multifamily Rentals: Supply & Demand
While the National Association of Realtors warned for years that new construction wasn’t keeping up with demand for housing, that dynamic may have finally changed. At least in major cities where construction of multifamily properties has been robust over the past few years.
According to Yardi, 617,000 new units are expected to hit the market in the next 5 years. That’s about as many as were delivered in 2016 and 2017. Most of this construction is centered on a few major metros. That means swelling supply in some areas, while others are still battling affordability issues with lack of inventory.
For some multifamily property owners oversupply could be a threat to rental pricing, occupancy, and profitability. Here are some of the ways innovative landlords and asset managers can beat that.
Innovative Leasing Strategies
One of the biggest trends of the moment is converting to coliving rental strategies. Either shared units or very small units with more community space. The rents and income per square foot using these strategies can be far, far higher. Similar strategies can be used to connect with today’s changing population and lifestyle trends as well. Such as assisted living facilities and shorter-term leases for today’s more mobile workforce.
Mixed Use Properties
Where possible landlords can also build in more mixed-use elements. This can create more community, more loyalty, and ties to the building, and may result in more loyal tenants, willing to pay more. Integrating small retail shops, coworking office spaces and community events and gathering spaces can all make a difference.
Renters are fed up with bad service. They are increasingly less trusting of rental properties and management. Shining with great customer service can help draw more tenants and create competition for your units, regardless of what else is happening out there. Those tenants with good landlords will be far less likely to risk moving to an unknown landlord, regardless of price.
Redeveloping Older Multifamily Units
The Apartment List Rentonomics report shows that 66% of units rented in 2016 were more than 30 years old. That’s the highest share on record, and at least since 1960. This means there are substantial amounts of aging multifamily housing ripe for renovation and redevelopment. In these opportunities, multifamily investors can find ripe deals for renovating and repositioning and creating outsized returns.
Monitoring & Adjusting to Market Competition
This is not a moment in which multifamily landlords can blindly stick to rough rules of thumb for renter application processes or offerings. Smart property managers recognize the need to customize these factors to each location and the target rental pool. It’s the only way to avoid large and extended vacancy rates today. Many may need to trial easier entry processes, or offer special deals. In New York landlords are barely holding onto the balance by offering rental specials, without compromising rental rates. According to the Brooklyn Made blog many are offering 1-3 months of free rent to lure new tenants.
Know your market, be flexible and lean on expert local management, and there are a variety of ways to increase profitability despite more inventory coming on the market.
ABOUT THE AUTHOR
Bill Zahller is the Managing Partner of Park Capital Partners, LLC and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Partners, LLC in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalPartnersLLC.com for more information.