Ellie Perlman, CEO of Blue Lake Capital Int'l LLC | Growing & Preserving Wealth With Multifamily Investments | Podcast Host: REady2Scale.
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As we approach 2025, I believe the multifamily real estate market continues to be a robust and attractive investment option. With economic uncertainties and changing demographics shaping the landscape, it's essential for investors to stay informed about the trends and predictions that will impact this sector. As an owner and operator of multifamily investments across the U.S., here are my insights on the multifamily market, both for the short-term and long-term.
The Appeal Of Multifamily Investments
The demand for multifamily housing remains strong, driven primarily by young people who prefer renting over buying. This demographic values the flexibility to move freely without being tied down to a specific geography. According to the Matrix Multifamily National Report, rent growth is bifurcated by region, but overall absorption remains healthy, with nearly 300,000 units absorbed nationally in 2024. This is proof of demand.
The Impact Of Elections On Real Estate
With the 2024 elections looming, many investors are keenly aware of the potential short-term and long-term impacts on the real estate market. Historical data shows that election years bring uncertainty, causing some investors to pause their decisions until the political landscape becomes clearer. Every time the administration changes, and there is a new election, there's some uncertainty in the market. Investors, right before the election, don't know whether the country is going to be red or blue.
This uncertainty often leads to a short-term dip in market activity and property values as investors wait for the outcome. However, the long-term impact of elections on multifamily performance is typically less significant. The fundamentals of multifamily are strong. The demand for multifamily is robust, with the barriers to homeownership only getting more out of reach for many. This isn't likely to change, and it helps sustain the market regardless of the political landscape.
Key Economic Factors Influencing Multifamily
Several key economic factors play a crucial role in shaping the multifamily market, especially during an election year. These include interest rates, investor confidence, policy changes, the job market, consumer confidence and the availability of credit.
Interest Rates And Investor Confidence
Interest rates are a critical factor that influences investor confidence. Fluctuations in interest rates, just as we've been experiencing, can lead to uncertainty, causing investors to delay their decisions. For now, it is likely these higher interest rates will remain for longer, which has a significant impact on real estate. This makes it more difficult for investors to assess the risk of investments, particularly during an election year.
Policy Changes And Taxation
Potential policy changes, particularly related to taxation, also impact multifamily investments. One significant legislative piece currently in discussion is the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). This bill, which has passed the Republican-led House and is currently held up in the Democratic-led Senate, proposes several changes to tax policies, including reinstating the capture of full bonus depreciation. In a nutshell, bonus depreciation represents the loss that investors see on their annual K1s. This law has historically allowed investors to offset their passive gains against their passive losses. The outcome of this significant tax advantage bill could impact tax planning and investor confidence and, at this point, is very likely tied to the upcoming change in administration.
Job Market And Consumer Confidence
The job market and consumer confidence are interconnected factors that significantly affect the multifamily market. A strong job market boosts consumer confidence, leading to higher demand for rental units and better occupancy rates. Conversely, a weak job market can result in higher vacancy rates and lower rents. The U.S. economy added 1.2 million jobs through May 2024, indicating robust employment growth that supports demand for multifamily housing.
Availability Of Credit
The availability of credit is another critical factor. During election-induced economic uncertainty, credit availability can tighten, impacting the financing of multifamily projects. During periods of abundant credit, lenders typically offer lower interest rates and more favorable terms. However, during election years, market volatility and uncertainty may cause lenders to hesitate, resulting in reduced credit availability and higher borrowing costs.
The Resilience Of Multifamily Investments
The multifamily market is poised for continued growth and stability in 2025. While short-term uncertainties may arise around election times, the long-term fundamentals remain strong. I always advise my investors to stay updated, read the news, read the policy proposals from both political parties and read expert opinions about how that could impact multifamily before making any decision.
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