Let’s explore multifamily investing, and uncover why we at Wall to Main have chosen to focus our attention on this asset class. Simply put, it begins with demographics. There is a dramatic shift currently ongoing, split across two age groups that heavily favors apartment buildings.
Millennials and Gen-Z are racking up increasing levels of student debt, with average debt per student on the rise since the mid-90s, resulting in over $1.6 trillion of total student debt by 2020. This in turn impacts the ability to buy a home.
Since 2004, homeownership rates among those under 35 have dropped significantly, with those between the ages of 35 and 44 seeing an even bigger decline. Additionally, millennials have been found to favor flexibility in lifestyle more heavily than any other generation. This generation prefers to have the choice of moving, whether it’s between cities, or possibly to a more urban location within the same metro. All of this leads to increased renting rates, and a larger pool of tenants for multifamily properties.
On the flip side, we’re finding similar behavior from Baby Boomers. Take a look at the top two lines. In the last 20 years, homeownership rates among Baby Boomers have dropped over 5%, as they too want increased flexibility as they settle into retirement. Cashing in on the home they raised their family in, Baby Boomers are heading south and transferring their wealth to warmer environments. And for every 1% that the homeownership rate drops, one million new renters appear in the market.
This means that in just the last ten years, across all demographics, approximately 10 million new households have begun renting. And unfortunately, with the economic pinch that we’re likely to feel after 2020, the number of renters unable to purchase a home is only likely to rise from here. Through 2025, an estimated 500,000 new rental households are expected annually, while only 300,000 new units have been built every year for the last three.
Limited supply and increasing demand looks to continue to push rents up. At Wall to Main, we plan to align ourselves with these patterns by investing fully in multifamily.
Prior to this emerging shift, multifamily has proven itself to be an incredibly stable asset class. Let’s take a look at annual growth over the past 30 years for a few different asset classes. Since 1990, multifamily as an industry has seen returns that resulted in 58% less volatility than the S&P 500.
At Wall to Main, we purchase properties in the South and Southeast where we see these demographic shifts growing at a faster rate and anticipate their continued impact.
We look primarily for properties which we call “value-add”. These are properties where an opportunity exists to improve the quality of life for tenants. Through capital investments, we can turn an apartment complex into a more desirable and efficiently run operation, both for tenants and investors.
And by nature, investing in multifamily promotes incredible portfolio diversification. In conjunction with our partners, we’ve invested in deals across America. If one town finds themselves struggling, our portfolio doesn’t crater. We’ve invested in Main Street across a number of different markets. Being involved in a variety of locations helps to smooth the performance of our portfolio.
And finally, if you’ve ever struggled with how to determine the right investment for your retirement account, we have a Free PDF that lists the top 7 reasons multifamily and retirement accounts are perfectly aligned.
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