What are the biggest threats and risks facing multifamily real estate investors in 2019?
Multifamily apartment buildings are set to continue to be one of the most sought after assets this year. Here are the dangers to be alert to, and the workarounds that will keep investors and their portfolios sound and performing the best.
1. Interest Rates
Other economic factors and trends may keep interest rates moderated in 2019. Though expect the fed to keep inching rates upwards, this can add to debt service and take away from net profitability if a refinance is needed, or a flip is planned in the short term.
Look to lock in lower long term rate loans if they are needed. Or opt for an equity partnership or multifamily syndication where no debt is required, or it is at least a smaller percentage.
2. Lack of Product Market Fit
What has gotten condo builders in trouble is a lack of product market fit. Just as with any business, you have to make sure that what you are creating is a good fit and is desirable for consumers. For example, micro-studios probably is not the best match for a family neighborhood where many parents have two plus kids.
Be sure to do your research on the market and know what is in demand before finalizing your layouts and marketing for tenants.
3. Failure to Know Your Rental Market
Building on the above, multifamily real estate investors also need to have completed thorough research on their local renter pool. This can vary widely by city and neighborhood.
Know your renter profiles, how much they are willing to pay, the features they care about most and which will add value, the application process which is palatable and appealing, and what specials the competition is offering.
Read this report on where rents are headed in 2019
4. Overpriced Assets
Some sellers and brokers are still riding the highs of the last couple of years. They are pricing listings very aggressively, with very low yields.
Be careful not to overpay. It is likely necessary to find off-market deals with less competition, and which offer more value and stability for the long run.
5. Failure to Take Action
Fear and the resulting indecision is the number one threat to investors. We appear to have seen some correction in some markets and asset classes over the past year. That’s good and welcome news for savvy investors. It paints the picture of where we are in the cycle, where it is going and gives the confidence to put capital to work. Take action. Just recognize where the market is, see the trends and negotiate accordingly.
ABOUT THE AUTHOR
Bill Zahller is the President of Park Capital Properties and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Properties in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalProperties.com for more information.