Multifamily is widely considered one of the most stable asset classes in real estate. Here are some of our top reasons why we prefer Multifamily investing over other strategies:
1 – Valuation
Multifamily properties are valued on income. NOI specifically – which stands for Net Operating Income. Think of each property as a business, there is revenue and expenses involved in operating these assets. The more you can increase the income, the more property is worth. You can increase NOI by decreasing expenses or increasing revenue (rents).
Single family properties are valued based on the “comparable approach” (value is derived from similar homes sold nearby), so no matter how much income its generating its likely only worth as much as your neighbour. Multifamily on the other hand, is valued and traded based on a multiple of their Net Operating income. This allows an investor to force their appreciation and calculate their equity gains.
2 – Recession Proof
Historically the multifamily asset class has been extremely resilient in a market downturn. When there is a correction/recession people tend to downsize and become renters. Since multifamily rentals are typically 1-3 bedroom units they remain very affordable and still in high demand in any stage of the economic cycle.
3 – Economies of scale
Costs are lessened when purchasing, managing and maintaining multiple units under one roof. Purchasing materials, renovations and property management are all streamlined and become more efficient.