The Best Multifamily Investment Opportunities Post-Pandemic

One of my financial regrets was not buying a multifamily investment property in my late 20s. Instead of taking advantage of multifamily investment opportunities to generate more passive income, I decided to buy a four bedroom, three and a half bathroom single family home and live larger instead.

The house wasn't huge at ~2,300 sqft. But it was too big for my girlfriend and I at the time. Two bedrooms and two bathrooms were hardly ever used. Not only was there so much wasted space, the house was a suboptimal use of $1.52 million. Taking on a $1,216,000 mortgage that cost $6,200 a month was a lot and sometimes stressful.

In retrospect, a better choice would have been to buy a two-unit building for a similar price. Each unit would consist of two-bedrooms and one and a half bathrooms around 1,350 sqft each. My girlfriend and I would live in one unit and rent out the other unit for at least $4,000 a month.

Not only would our living costs have been so much lower for more than a decade, our passive income today would be at least $2,000 a month higher. Investing in multifamily investment properties is a better bet when you are young and don't have children.

You can do so by investing in pre-vetted properties on CrowdStreet's platform. They focus on multifamily properties in 18-hour cities where valuations are lower and growth rates tend to be much higher.

Big Pent-up Demand For Multifamily Investments

The housing market is now booming. Rents are rising and so are real estate values. It's best to get smart on the best multifamily investment opportunities today.

The value of cash flow has gone way up because interest rates have come way down. Meanwhile, mortgage rates will continue to be very accommodative.

For evidence of pent-up demand, look no further than Airbnb's IPO on December 10, 2020. The company was valued at $49 billion at IPO, higher than the original valuation range offering. The shares then proceeded to double in the first day of trading. Hospitality real estate is coming back strong!

The Best Multifamily Investment Opportunities Post-Pandemic

Remember, hospitality is still largely shut down. Airbnb bookings are way down. Yet, Airbnb is now worth about $100 billion after raising capital in April 2020 at a valuation of only $18 billion.

The share price performance signifies the demand for travel, hospitality, and real estate will come roaring back. And it certainly has as of 2H2021.

Therefore, you want to get long real estate because you've connected the dots. Thankfully, real estate valuations move at a much slower pace than stock valuations. Hence, the current opportunity to buy multifamily investment properties.

I've invited CrowdStreet, one of my favorite real estate crowdfunding platform for accredited investors and Financial Samurai sponsor, to educate us on three types of multifamily properties they think are the most promising. CrowdStreet is free to sign up and explore.

The Best MultiFamily Investment Opportunities Post-Pandemic

1) Build-to-Rent (BTR)

The 2008 housing crisis led to a national decline in homeownership, which in turn drove an increase in demand for rental properties. The market responded and rental stock increased by more than seven million units.

This included both multifamily units and single-family homes, with the single-family share of all rentals growing from 31% to nearly 35%, the largest percentage share we’ve seen nationally since 1965. In fact, from 2005 to 2015, 56% of the gains in the rental market came from single-family homes.

The Best Multifamily Investment Opportunities To Consider

And while renters fall in every demographic, the U.S. Census Bureau estimates that 65% of Americans under the age of 35 currently rent. Although 92% of millennials consider homeownership a good investment, 48% say they have to delay buying a home because of their student loans.

For many, the potential mortgage isn’t the problem. Rents in growing metros can easily be the same as a mortgage payment. The problem is having enough cash saved for the initial down payment. Then, qualifying for a mortgage is the next big obstacle.  

Enter, Build-to-Rent properties. 

Build-to-Rent (BTR) takes the best aspects of single-family rentals–yards, driveways, that “neighborhood” feel, etc–and develops all the homes inside a professionally managed community.

These BTR properties are similar to traditional, gated residential neighborhoods with great community amenities–swimming pools, tennis courts, dog parks, etc.–but without the HOA costs. Or a down payment.

The Attractiveness Of Build-To-Rent Properties

The Investments team at CrowdStreet has been keeping their eyes on potential BTR investment opportunities for a few reasons:

The Best Multifamily Investment Opportunities To Consider
  • In 2018, the National Apartment Association reported the average turnover rate was 46.8%. In comparison to traditional multifamily units, SFRs have experienced significantly lower tenant turnover rates. Less turnover means more durable income, lower operational costs, and fewer empty units and missed rents.
  • The BTR market has also demonstrated a unique ability to achieve “Market Rate Premiums” over competing Class A multifamily assets. CNBC reported that, “…the rents for single-family are growing fast at 4.5% annually now compared with 3% rent growth for multifamily apartments…”
  • As an asset class, BTR has seen exit cap rates that compare well with traditional multifamily assets, with cap rates ranging from 4.75% to 5.5%.
  • The CrowdStreet Investments team believes that highly desirable renter segments–dual-income rental households and other high-wage earning households–will embrace this asset class thanks in large part to the amenities designed to cater to this demographic. 

CrowdStreet launched their first Build-to-Rent investment opportunity in September and the project ultimately raised money from investors. CrowdStreet also launched a Build-to-Rent fund with a $150,000 minimum in 2021. It plans to invest in 8-10 properties for diversification.

We’ve seen that millennials are beginning to place a premium on space and amenities such as a backyard. This is a trend that has been further accelerated by the COVID pandemic. BTR fills this need for a cohort that is burdened with high levels of student debt and therefore not necessarily in a position to purchase that first home,” said Anna-Marie Allander Lieb, CrowdStreet’s Director of Investments.

2) Micro-units

Compared to BTRs, which offer more space to renters, micro-units are “a purpose-built, typically urban, small studio or one-bedroom using efficient design to appear larger than it is and ranging in size from as little as 280 square feet up to as much as 450 square feet.” 

Micro-units cater to young, urban professionals in major metros where a single-bedroom apartment could easily cost anywhere from $2,000-$4,000+ a month.

A micro-unit costs roughly 20-30% below that of a conventional studio or one-bedroom. Micror-units are, therefore, more affordable without needing a roommate. Further, the building often leans heavily on amenities such as a common “living room” with a big screen tv, a large, reservable gourmet kitchen, shared workspaces, and so forth, to compensate for the smaller units.

While the units might be slightly smaller, there are benefits. Efficient and thoughtful design along with high end finishes make micro-units attractive.

Why Micro-Unit Apartments Are Attractive

  • Micro-units can offer some of the highest rent per square foot of any multifamily property. Although they may cost more to build and operate, the premium rent per square foot achieved more than makes up for the added cost.
  • The key to a successful micro-unit development is to provide an affordable alternative to young renters in highly desirable, urban locations. 82% of current micro-unit dwellers weren’t intentionally seeking out smaller units. However, for 97% of these renters the property’s location was the deciding factor. 
  • Micro-units are emerging across the country as one way to help address the affordable housing crisis. They increase housing stock and provide affordable homes within desired urban locations. Micro-units can cost between $30,000 – $60,000 versus the median home price at around $340,000.
  • People who run businesses out of their homes, ranging from therapists to dog groomers, are no longer comfortable having clients in their actual residences. This is spurring the movement of more tiny houses.
  • There has also been a sense of security attached to buying small during a pandemic, especially if that home is mobile. It's almost a full-proof quarantine center.
  • IPX 1031 found the most tiny home purchases in states with smaller populations. Vermont, New Hampshire, Maine, Wyoming, Washington, Idaho, Montana, Oregon, Rhode Island and Alaska were the states with the most sales.
Supply of new housing growth

As Allander-Lieb points out, “When evaluating micro unit apartments, location is key. We want to see developments located in sought after urban locations. These develops will offer a vibrant live work play environment. Further, they will have easy access to transportation.

3) Student Housing

Student housing, like any market, must balance the forces of supply (the number of available beds) with demand (the number of students seeking beds). The long-term viability of a student housing market is highly dependent on consistent, sustainable growth in the student population it serves. 

At the beginning of the pandemic, the student housing sector suffered as universities across the country shut down and sent students home. As a result, student housing vacancies skyrocketed.

When CrowdStreet first published their Investment Thesis back in July, the team specifically left student housing out.

As Ian Formigle pointed out, “At the time, there were still many unknown factors that loomed over the entire sector. Were universities really going to open in the fall? Were students actually going to return to campuses? How many students would defer to next year’s enrollment? Even if campuses opened, would they be able to keep students safe and remain open? How would larger public universities fair versus small colleges? As a result, we took a cautious approach to the sector and worked to gather as much information as possible.

Positive Structural Changes In Student Housing

As some campuses reopened this fall, NREIOnline reported that, “A number of these universities are re-evaluating their on-campus housing strategies by eliminating double, triple, and quadruple occupancy bedrooms, while also taking entire on-campus dorms off-line in order to use as housing for COVID-19 positive students to quarantine. This has created a surge in demand as more students are pushed into the off-campus housing market.

Student housing national pre-lease occupancy - one of the best multifamily investment opportunities

More Positives For Student Housing

  • Despite the spike in student housing vacancies this spring, collections have remained high throughout the pandemic. Many student leases were backed by parents with strong credit.
  • Student housing has consistently demonstrated that it is resilient, proving to be recession-resistant in 2008. 
  • Looking ahead, the 2021/2022 school year should show continued enrollment growth. Ironically, part of the growth is due to continued high unemployment, as well as 2020 deferrals. 
  • Along with multifamily apartment buildings, student housing is one of the few asset classes that benefits from cheap fixed-rate financing via Fannie Mae and Freddie Mac. 
  • When we exit the pandemic, the most desirable and best-capitalized universities will likely exploit their competitive advantage to attract the nation’s best students in record numbers. In turn, this will propel their student housing markets. 

Multifamily Investment Properties: Great For Passive Income

Multifamily investment properties are laggards compared to the S&P 500, which is sitting near its all-time high. Take a look at VNQ, one of the largest REIT ETFs. It has lagged, but is catching up.

As we eventually emerge from the pandemic, it seems likely that all three types of multifamily investment opportunities CrowdStreet has highlighted could outperform.

BTR: I know from recent firsthand experience the demand to rent larger, single-family homes with more outdoor space is strong. In the past, I would only be able to find four or five guys, which created more work. With my recent rental, I had demand from couples and families in addition to individual roommates.

Micro-Units: Micro-unit apartments have been all the rage in places like Hong Kong and Singapore for a while now. I'm assuming that post-pandemic, fewer people will want to have roommates. Affordable micro-unit apartments fulfills this structural demand shift.

Student Housing: With universities eliminating double, triple, and quadruple occupancy dorm rooms and moving housing off campus, demand for off-campus housing should increase. The desire for our youngest and healthiest population to get back to in-person interaction is the strongest.

Rent increases on fire - multifamily rents are doing well

Invest In Multifamily Invest Opportunities With CrowdStreet

Thanks again to CrowdStreet for giving us some insights on the best multifamily investment opportunities for the future. I'm glad CrowdStreet will be sourcing such opportunities for investors on their platform.

You can sign up here for free to explore their latest offerings. CrowdStreet focuses on properties in 18-hour cities where valuations are cheaper and cap rates are higher. Due to the “spreading out of America,” growth rates in heartland cities should be faster.

I've personally invested $810,000 in 18 real estate crowdfunding projects across the country. I'm bullish on multifamily properties for the foreseeable future.

Readers, what are the best multifamily investment opportunities in your opinion? Build-to-rent certainly seems to be right up there. So are single-family rentals as rents rise and vacancies decline.

For more nuanced personal finance content, join 100,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. 

About The Author

18 thoughts on “The Best Multifamily Investment Opportunities Post-Pandemic”

  1. Multifamily is a great way to build long-term wealth. There a definitely opportunities in student housing, BTR, and micro-units in certain markets. There’s also an opportunity in workforce housing. There is low supply, high demand, an opportunity for investors to earn high income with opportunity for appreciation in value-add models, and it provides much needed quality housing for an underserved segment.

  2. Abiola Abdullah

    Thanks for all the knowledge you’ve shared on your blogs. I’ve read quite a few of your post. But this one relates to what I’m currently considering. We actually own a home in Florida, Broward county, a SFH(4/2). But we haven’t had much luck with long term tenants and are losing our 3rd set of tenants at the end of March, in the 3 years of renting it out. We’ve owned it for 5 years and are up approx. 100k in value/equity. So we’re literally on the verge of selling (listing it this week) taking the profits and buying another investment property. It’s an old house (1978), roof is going to have to be replaced soon(next 5 years) and A/C is on it’s last leg also. So we wanted to cut and run before the market dips or the house falls apart, take the profits and use the VA loan that we brought the house with, along with the profits to buy an investment property.

    First, would you sell the SFH in south Florida, if you was me? And if you did sell, what would you do with the 100k profit, as far as a short term rental (AIRBNB), multifamily home or SFH purchase?

  3. Ms.Conviviality

    Sam, Thanks for inviting CrowdStreet to share their market research with FS readers. It was insightful into BTR and micro units since those are areas I wasn’t aware of. I live in a top 10 college town and own a couple of rental units and can say that CrowdStreet’s assessment is spot on.

  4. There are demographic shifts that will be hitting higher education hard in the next decade (basically, far fewer children from Gen X compared to the numbers of Millennials). May make student rentals less desirable, especially in college towns with third tier colleges

  5. Jack @ Turtle PF

    Very interesting to that total amount of rental households and percentage of households of rentals raising that fast since 2006. We own a few investment properties in B-class/fairly low-cost areas (Indianapolis). I think investing in cash-flowing properties in a stable area (in terms of housing price/rent) will be a decent strategy going forward.

  6. Sam –

    Why not simply invest in Vanguard US REIT and Vanguard International REIT Index Funds? Liquidity, passive income, tax more favorably with the passage of the 2017 Trump Tax Act (QBI deduction of 20%).

  7. This seems like a basket of questionable guidance at best. Even as recently as this weekend there was an article about higher education and how it will be permanently changed by Covid. That being said, I also read something about how people tend to seek more education during a recession. So student housing can be highly dependent on what demo you are targeting just as commercial real estate is not something to just throw away as a terrible idea right now. I certainly would not leave it up to Crowdstreet to make the right choices here regarding what demo to target. Most people don’t need to crowdfund to get into RE. They just need to learn how to do it at the scale necessitated by their resources.

    Also, microunits are literally the opposite of the trend being driven by Covid, which is urban flight and higher income targeted residential investments. Basically, your mountain town investment could have doubled in the current environment yet you make no mention of how Tahoe housing volume is probably up 100+% YoY and it’s the same all across the board in mountain/ski towns, but very notably Tahoe, Park City, and various parts of Colorado.

    If anything, RV parks and tiny house developments are the big thing that has already happened and continues to blow up. Packing a whole bunch of people close together doesn’t make sense but allowing people to have their space in a cost-effective manner does.

    1. The key is to investment before there is a trend. By the time the trend is in the news, it’s too late.

      People love to chase the herd. For example, I wrote about investing in the heartland in early 2017. Now it is a property buying bonanza.

      Same thing with investing in Tesla several year’s ago etc.

      So actually, the more skepticism I see from an investment thesis, the better IMO.

      1. Agree. A few months ago, so many sceptism about the residential housing price, and that’s precisely when there was still opportunity to buy sfh in desirable areas with some good or fair deals. Today, when everyone realizes the housing market has gone bananas, no deal to find. Maybe the next trend is dense urban living again… Who knows?

  8. I have chosen to go the Student Housing direction. I’ve selected two investments with Crowdstreet. One is in a Big 10 school and one in an SEC school. I have faith these large universities with significant under grad and graduate programs will thrive beginning the Spring semester. Many graduate programs rely on in-person teaching and labs i.e. medical and dental. I’ll report back on this website how these investments work out.
    I would be interested in how others do with BTR and Micro housing.

  9. I visited several micro units and they suck. I wouldn’t live in such tiny apartments if I can afford better. People embrace micro units because the housing price is out of control. As an investment, they might be good, but I wouldn’t want to live there. 1,000 sq ft for 3 people is already pretty tight for us.

  10. Illia Kyselov

    Very interesting options! Indeed, the time of “rollback” should come soon and now it is necessary to plan investments. It is a pity that in our country there are no such companies as you describe in the article. This greatly complicates the process ((

  11. Sam, thanks for the info. However, beware that CrowdStreet is also plugging the investments currently available on its platform. As an investor, be sure the numbers make sense before jumping in.

  12. Would it be smart to make an investment into a multi-family home (to live in and to rent out parts of) as soon as graduating from college or to rent a place for a while? Also, what are your thoughts on rent-to-own structures for real estate investments?

  13. We caught a glimpse of “real economy stocks” and value stocks significantly outperform tech stocks and stay at home stocks once Biden was elected and the stock market opened.

    So I think you’re right about commercial real estate outperforming stocks again in 2021. Micro-units are really interesting to me. More independence, more affordability, and more safety.

    1. Micro unit safety is questionable during the COVID pandemic given the shared common spaces. I think they will be great after we get through the pandemic in a couple years.

  14. I haven’t heard of the term BTR before but that sounds a lot like what I grew up in before my parents bought a house. It was like a small community of identical units with a shared pool. It was a nice place to be while my parents saved up for a house.

    As for micro units, I’m a fan especially in urban areas. Many places in Asia and Europe have embraced micro units for a long time. It’ll be nice to see this market grow in the US. I always love seeing features on micro units and how much they can hold and accommodate when you’re well organized.

Leave a Comment

Your email address will not be published. Required fields are marked *