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Understanding the Dynamics of the Multi-Family Real Estate Investment Market

Multi-family real estate comprises approximately 25% of the U.S. commercial real estate stock and is one of the widely held real estate class. Previously, this asset class was considered a residential asset, but today it is one of the four main commercial real estate classes the others being industrial, retail, and office.

Multi-Family Asset Class Overview

This asset class spans a wide spectrum of properties including buildings that have at least 2 housing units either horizontally or vertically adjacent. Multi-family properties also have shared physical systems such as roofs, walls, utilities, and other amenities.

There are different multi-family property classes which include class A, B, and C. Class A is for resort type properties while class B is workforce housing. Class C which is the lowest rated consists of assets that are cheap to rent or barely functional.

Demand Drivers

A good way of looking at the U.S multi-family demand drivers is to start from the households who are either renters or owners. The U.S Census Bureau placed home-ownership at 62.9% in March, 2016 with renters accounting for 37.1%. in total, there are about 117.4 million households.

Population Growth

Growth in population also increases the number of households although at a lower rate. For instance, if the population grows by 5%, the total number of households grows by 2.5%. This means an increased demand in multi-family housing.

Rental Household Growth

Because of the recession, home-ownership declined from 69% in 2004 to 62.9% in 2016. This means the total number of owner households decreased and renter households increased. This swing in renters versus owners can affect demand for property.

Job Growth

This is another indicator that correlates to household growth because people can afford their own residences when the job growth numbers are positive. The people who benefit from job growth are not owner households, but rather renters. By tracking this metric, you can know when to opt in to the market and when to hold a little bit.

The Cost of Ownership

When looking at the cost of ownership of multi-family houses, there are two dimensions to analyzing it. First you look at the real estate prices because when they are high, they deter home-ownership and makes purchasing homes difficult. Secondly, look at the percentage of renters present in any market because this can indicate the affordability of houses.


Choices and behavior of different demographics has a direct impact on multi-family property demands. A key demographic trend is the aging of the millennial generation. Millennials are known for delaying marriage and having children and prefer moving to the suburbs. Their preferences when it comes to buying homes is usually postponed for later.

Most millennials are also servicing their high school debts and this makes it a challenge for them to finance their home purchases. Apart from this group, there are also empty-nesters who are downsizing or otherwise opting for low maintenance rental homes.

Even though multi-family real estate investments have their own complexities with a unique set of risk factors, looking at them from a risk and investment analysis perspective, they are regarded as the safest commercial real estate asset classes you can invest in.

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