In 2022, much like the median price for single family homes, we saw multifamily properties rise to the highest point in history and then watched the real estate market decline as high inflation and high interest rates manipulated the economy. The high prices, intense competition, and economic volatility experienced over the last two years have made it more difficult to acquire new properties and many wonder what 2023 has in store.
Real estate professionals should do their research and enter the 2023 market with cautious optimism. There will certainly be challenges for real estate investors in the new year, however, with the right strategy and thoughtful partnerships, there will be opportunities to be successful.
While many factors influence a good investment property, the main thing impacting investors in the coming year will be the type of property they are investing in. As the demand and price for single family residential homes decrease, multifamily properties will remain relatively stable and perhaps even grow towards the end of 2023 according to a Freddie Mac report. The 2023 outlook report from Freddie Mac expects the multifamily market to slow in the beginning, but regain strength by the end of the year, which has not been said for other asset classes.
Multifamily has consistently proven to be a profitable investment if done with the proper forethought. Choosing the right location based on market research and partnering with an experienced lender are two things that will surely contribute to your success.
Investing in multifamily real estate may seem more intimidating than investing in a single family home and renting it out, however, it is often a more predictable and reliable source of income.
One of the main reasons investing in multifamily has been, and will continue to be, a wise investment choice is the low probability of complete vacancy. If you rent out a property with multiple units, when someone moves out, it is likely that you will have other tenants occupying a portion of the property. This establishes regular cash flow and is generally less risky.
Another reason many investors see multifamily as a worthwhile investment is the ease of building their portfolio. Why buy 20 individual homes when you can buy a 20 unit apartment building instead?
Based on the 2023 market predictions, especially if accompanied by a recessionary phase, the option to buy even one single family investment property and be profitable will be slim, therefore trying to build your portfolio and cash flow with multiple single family rentals this year will be difficult.
Looking Ahead at the Multifamily Market in 2023
Despite the uncertain state of the labor market, we remain cautiously optimistic about the next year of real estate investing. If the Fed can manage a soft landing, without any major impact on the job market, then stabilize. We believe the multifamily market will persist as other asset classes may take a harder fall over the course of the next year.
Prepare for the uncertain road ahead by staying informed on the market's trajectory, partnering with experienced real estate professionals, and entering the new year with an optimistic, yet pragmatic mindset.