CBRE recently surveyed investors about their preferences and intentions. 42% prefer multifamily over other real estate asset classes. Build-to-rent and student housing, which share the same fundamentals, came in a close second for investor preference.

Why do investors gravitate towards multifamily? One reason is that it’s an easy to understand investment. All of us need housing. Leases are simple and tenant qualification follows the same principles as mortgages, like their ability to pay and their credit history.

Another reason is that you can’t go wrong with an asset class that’s in short supply with high demand. Even if this wasn’t the case, multifamily gives you many paths to make each opportunity profitable. Here are five key advantages that make multifamily stand out:

1. Economic resilience and stability

As one of the most basic physiological needs, people always need a place to live. They may cut back on hiring employees and need less office space, reduce discretionary spending and cause retailers to fail or stop traveling and leave hotels empty. There’s a demand for housing no matter what is happening in the economy.

In fact, the growing gap between housing demand and supply increased by 2.5 million units at the end of 2023, which drives the need for more multifamily rentals due to an overall shortage.

We see other sectors experience peaks and valleys in demand. For example, the pandemic impacted office and hospitality. And for several years, e-commerce impacted and changed the retail segment. This makes multifamily stand out as a steady and stable investment.

2. Consistent demand for housing

Besides the housing shortage we see with our population growing faster than supply, there are also costs and other demographic shifts that increase demand multifamily housing. This includes:

  • Higher costs to buy a home due to appreciation and interest rates which requires $47,000 more income in 2024 than 2020.
  • Renters now save $162 more per month compared to buyers across major metropolitan areas than they did last year.
  • 73% of baby boomers see renting as a more affordable option than buying.

3. Value-add opportunities

There’s more and faster ways you can increase revenue and net operating income with apartment complexes compared to other asset classes. For example:

Common value-add strategies

Most investors include standard enhancements in areas like:

  • Raising rents to market levels
  • Making cosmetic renovations to increase rent
  • Installing renting washer and dryers in units
  • Implementing pet fees
  • Setting up resident utility billing (RUBS) to recoup utility costs
  • Providing master cable/internet service offerings
  • Adding common area amenities like play areas and dog parks

Additional revenue streams

Investors can go beyond the basics and get creative with other ways to increase property revenue. Some of the strategies we’ve used include:

  • Valet trash service: Trash pickup at each tenant’s door for added convenience.
  • VIP parking: Designated parking spots closer to the property or main entrance.
  • Carports or garages: Adding these parking spots to rent out for additional income.
  • Storage units: Adding storage areas on the property available for rent.
  • Co-working or event spaces: Shared spaces tenants or non-tenants can rent for work or events.

4. Financing advantages

Investors can leverage agency debt options to buy multifamily properties through Fannie Mae and Freddie Mac. These loans have non-recourse terms that reduce liability and personal risk. Plus, 30-year amortization schedules and interest-only options can help increase cash flow during the initial stabilization period of a property.

This type of financing remains highly active in today’s market, with Fannie Mae providing $1.9 billion in financing in the just first half of 2024 for workforce housing properties.

5. Shorter leases, more control

Property owners can adjust rents on an annual basis which means they can make adjustments on a regular basis to increase income. This is different from other sectors like office, industrial and retail where leases span several years. Even with built-in rent increases, investors in these real estate niches have to wait for tenants to move out before increasing rents to current market levels.

And while we see variations across the country, CBRE’s recent data shows continued nationwide rent growth at .3% in Q2 for the multifamily sector.

Final thoughts

Multifamily’s combination of supporting living needs, agency financing, and creative value-add strategies gives this space an advantage over other real estate investments. With fewer cyclical challenges and shorter lease options, this niche gives investors a reliable path to profitability.