Why I like Multifamily Investments

Over the first few years of my career I have had the good fortune of working on several different types of projects in several different markets. From office projects in SoCal to retail centers in Miami to apartment communities in D.C., I have had a fairly wide breath of transaction experience and at least some exposure to each of the four food groups (office, industrial, retail, multifamily).

For my own personal investment, I prefer apartments. And here is why:

Rollover:   If an anchor tenant blows out of a retail center, the value of the property is cut in half. If you lose a few major office tenants . . . same story. An industrial building can lose 1 TENANT and go from 100% occupied to vacant. In an apartment complex, you will lose a few tenants every month, but you will also gain a few tenants every month. So if your complex is 95% occupied and 7 tenants do not renew their expired lease, you may drop to 90%. But then you have a good weekend and 5 new tenants sign leases and you jump back up to 93% occupied. Long story short: the down side is much more manageable.

Demand:   With the proliferation of online retailers like eBay, Amazon, and Netflix, retail is shifting more and more to online sales with fewer physical locations. We have discussed before ( how the demands for office space are changing and may be falling. But at the end of the day, everyone needs a place to rest their tired bones and not all of us can (or SHOULD!!!!) buy homes. Long story short: no matter what happens in the market and economy, there will always be a demand for multifamily housing.

Lack of Institutionalization:   In the office, retail, and industrial arena, there is a huge number of institutional investors and management companies. Barriers to entry in these investment markets are high and access to capital can be difficult. Multifamily has its share of institutional investors, owners, and managers, but I would argue that there are fewer relative to the other three. In my experience, it is much easier to find a family owned and managed multifamily property than retail, office, or industrial. That is changing with every year, but as of now apartment are still accessible to beginning investors. Long story short: If I am interested in buying apartments, I can usually find and contact the owner within a day. In the other three food groups I would have to go through a lawyer, broker, assistant, Junior VP, and Senior VP before I actually got to the decision maker.

Simplicity: Let me be clear, I am not asserting that apartment deals are easy or unsophisticated. But I would say that if you have enough knowledge to build a nice home, then you probably have enough knowledge to build and apartment complex. The process and strategies for building a single family home are very similar to those of multifamily developments. The same can’t be said about office buildings, retail centers, or industrial buildings. Long story short: John Q Public (a homeowner) could probably figure out how to build a decent apartment complex with the right architect and GC. I doubt John could build a high rise office building.

There are other reasons that I am attracted to multifamily investements, but the 4 listed above are the main ones. Did I miss any? Disagree with me? Tell me why in the Comments.


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