Real Estate Investing

Multifamily – The Lego Of Investments

By December 14, 2016May 14th, 2019One Comment

The holidays are rapidly approaching. It’s my favorite time of year!

It’s a season filled with family, friends, and economic lessons.

For some, it is the lesson of sticking with a budget. For others, it might be the ills of credit card debt. However, the most interesting economic lesson to me is that of supply and demand.

Every year some toys go viral.

They end up on every child’smust-have list and the manufacturers can’t keep up with the demand.

There are stampedes at retail stores, empty shelves, and black market resales with gigantic markups.

Looking back, it’s hard to believe the prices that some people paid for that special Cabbage Patch Doll, Beanie Baby, and Tickle Me Elmo.

As crazy as those seemed, it was a lesson in supply and demand.

Supply and demand also affects commercial multifamily real estate. In fact, it is one of several economic factors that make this asset class so compelling.

Consider a recent article in GlobeSt. (a commercial real estate trade journal) published in August of 2016 entitled “Why Choose Class B Apartments Over Class A?” In it, the author describes the significant under building that has led to such a small supply.

“In the 1970s, 4.87 million apartments were delivered, and there were 216 million Americans at that time. There were 4.2 million apartments delivered in the ’80 s, and the US population was 238 million. In the 2010s, it’s expected that we’ll have under two million deliveries, and there are 321 million people living in the US.

“The reality is that we’re not delivering nearly the number of apartments that are needed by the population.”

While this under building has gone on for more than a decade it continues to worsen. Currently we are shorting the market 1.5 million units nationally on an annual basis.

As these facts show, the supply is low?

But what is driving such high demand?

It really comes down to four factors:

  • Immigration
  • Psychographics
  • Demographics
  • Economics

Since I don’t want this article to turn into a book, I’ll cover each one of these factors in a series of posts to come.

For now, let me say that these four factors combine to create what the Urban Institute calls, “a perfect storm of factors.” In fact, their research has led them to proclaim:

“We are not prepared for the growth in rental demand.”

The good news is that those investors who have diversified into multifamily are prepared. They’ve positioned themselves in front of this “perfect storm of factors.” They’ve enjoyed compelling returns. And given stats like the ones above, is it any wonder why the Urban Institute’s research projects:

“From 2010 to 2030, we’ll see five new renters for every three new homeowners”

The fundamentals propelling investment in this asset class are undoubtedly strong.

While this compelling supply and demand story may be analogous to 1996 and the phenomena that was Tickle Me Elbow. Clearly, apartment investing is no fad. The fundamentals of this asset class have staying power like Barbie, LEGO, Hot Wheels, and the Hula Hoop.

This isn’t brain surgery; it is economics 101:

  • Serve the largest population you can (almost 40% of the U.S. population rents and growing)
  • Serve them as long as you can (an investment in apartments is an investment in the basic need of shelter which will never go away)
  • Serve where demand is high and supply is low

If you want to learn more about the fundamentals and demographics of this asset class, download your free copy of Evidence Based Investing now.

And for those physicians and non-physicians who want to learn more about how to qualify to see our deal flow, probably the simplest way to do so is to book some time on my calendar to speak. There is no obligation and no sales pitches.

Schedule a 20-minute phone call.


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Dennis Bethel

Dennis Bethel

After 18 years of working in the trenches of a broken health care system, Dennis Bethel, M.D. extricated himself from medicine utilizing the power of passive income from real estate. Now he helps others conquer their number one financial fear, cut their biggest expense, and tame the greatest threat to their careers.

One Comment

  • I did a little bit of research on a post a couple of weeks on this and you are absolutely right. Getting into the rental market for the long term is definitely going to be a smart move. I am currently saving up cash so I can buy an income generating property. Thanks for the great breakdown!!!

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