Traditionally, multifamily properties have been lucrative investments. However, rising inflation costs in a decreased demand for this type of property have had a direct effect on the amount of money you can make by purchasing a multifamily property. Before you become an investor by purchasing a multifamily property, make sure you have a thorough understanding of the current state of the market.
What Is the Current State of the Multifamily Property Market?
Many multifamily properties have numerous vacancies. Even if you have room to accept applications, you will probably get few tenants. There are two reasons for these vacancies.
Firstly, many people have implemented strict social-distancing protocols in the last to years due to the rise of COVID-19. In an effort to get away from crowds, many people have moved away from cities where multifamily housing is popular. There is less of a demand for multifamily properties because the cities have fewer people, so construction of multifamily housing has decreased drastically.
Secondly, inflation has driven the cost of living drastically higher than it was at the start of the pandemic. Landlords must charge more rent to cover the cost of the mortgage, but because few jobs are giving employees extra pay, many people cannot afford the increasing prices of rent. Instead of living independently on a multifamily property, people must reside with family members in single-family dwellings will forward because of inflation.
These two reasons make investing in the multifamily housing market a risky venture at the moment. The good news is that inflation always fluctuates, so when it goes down, it will likely get much easier to fill vacancies on more property. Similarly, as we adjust to life after the COVID-19 pandemic, people will start to be less afraid of being around the crowd and will start to move back to the cities they vacated when the sickness first hit.
Why Is Investing in Multifamily Property Risky?
With the price of multifamily properties so low, you may think that now is the perfect time to prepare for a future investment. You can find desirable multifamily housing properties for great prices, and if you can afford to purchase them now, you will make a significant profit when the market picks up.
However, multifamily housing is a significant investment. Even at affordable prices, you will pay a large sum of money for a good property. You must still make mortgage payments even if you do not have income from tenants. This means that you may lose a significant amount of money before you begin to turn a profit.
In most cases, it is possible to sell an investment that doesn’t work out. With the housing market, selling off failed investments is not usually beneficial. You may be able to find property at great prices, but that means you will not be able to sell it for the same price if it does not work out. You can’t make money on a failed investment in multifamily housing. If you decide to sell for any reason, you will most likely lose a significant amount of money. It’s often hard to find a buyer in the current market, so you may not be able to get anything for your property. If you choose to buy now, make sure that you will not have to sell the property for any reason.
What Is the Outlook for the Market?
Although the current state of the multifamily housing market does not make it a favorable investment, it is expected to rebound quickly. The demand for multifamily housing will grow again as we continue to rebound from the COVID-19 pandemic and people no longer need to practice social distancing. As the market grows, demand will skyrocket, so it is best to be prepared if you want to get into multifamily housing investments.
There is no way to know exactly when the housing market will rebound. However, we are already starting to see the market grow slightly as people return to densely populated cities, so many experts believe that the market will peak again by 2024.
Get Financing for a Multifamily Property
If you want to be ready when the multifamily housing market rebounds, it helps to have the right financing so you can buy property at an affordable price. Contact HML Solutions today to ask about the financial solutions we offer to help you secure multifamily properties.