Over the past few years, a boom in demand for luxury multifamily units in major cities as well as up and coming markets has fueled investment and speculation. As a result, the supply for affordable housing has become lopsided, creating shortfalls in many areas. As with any imbalance between supply and demand, this is due for a correction, and that’s why savvy investors are opening up to affordable housing as a primary multifamily real estate development goal for 2020 and probably the following year, if not longer.
Increased Demand in Urban Centers
Much of the country is experiencing historically low unemployment rates, but the market for affordable housing often falls short of the capacity a city requires for all the new jobs being created in many industries, and all over the country at once. As a result, investors who plan on creating cost-efficient renovations and new buildings alike will find them easy to fill, creating a potential for medium to long-term income property investment with a previously unseen level of market security. This market won’t hold forever, but when demand normalizes, the players whose investments are already well past the point of return will find it easier to continue operating profitably in the multifamily real estate market.
Fix and Flip, Flatten and Build, or Develop New Land
There are a lot of ways to cultivate a cost-effective income property and a lot of approaches to monetizing it. Short-term investors will find a fix and flip, remodel, or reconstruction effort easy to calculate returns on when the market favors investment in these properties as long-term income sales. That’s because it’s easy to find an investor looking to buy into a long-term return when you have a high demand for the type of property you’re holding already established. The key is to know your market. Smaller cities with less total housing than they need for projected growth are due for expansion, but in more crowded areas you will probably find a renovation or reconstruction is more affordable and yields a bigger return.
Move Into the Next Trend Early
The key to making good money on real estate investments is timeliness. If you move on a trend in multifamily real estate after it has peaked, you won’t make nearly the return that early adopters do. That’s why so many of the most successful entrepreneurs out there work hard to identify emerging trends and act on them quickly. It’s the only way to get your return while prices are actually peaking, and it gives you the chance to do more business while the trend is up.