Why New Buyers Start with Multifamily Investments

Multifamily investments have proven to be one of the most resilient commercial real estate property sectors over the last several years. Even in challenging economic conditions, vacancy rates hover around all-time lows while rents continue to rise in many markets.

Although multifamily investing requires some homework, buying multifamily buildings can be more straightforward than other commercial buildings for sale. Let’s examine why multifamily buildings are a growing gateway for first-time multifamily investors.

What is Multifamily Property?

A multifamily property is a residential building that has more than one unit. Common types of multifamily investments include:

• Duplex (2 units)
• Triplex (3 units)
• Fourplex or Quadruplex (4 units)
• Townhouses and row houses
• Apartments
• Condominiums
• Cooperatives or Co-ops
• Student housing
• Mobile home parks
• Senior housing
• Assisted living facilities

Multifamily Investments vs. Single-Family Investments

First-time CRE investors often opt for single-family investments without considering other rental property options, such as multifamily or apartment buildings for sale. While each residential subtype has pros and cons, there are several distinct characteristics to know about multifamily property.

For example, every unit in a multifamily building has a unique address and usually a private entrance. Multifamily units have individual kitchens, bathrooms, living rooms, and at least one bedroom. On the other hand, some multifamily investments may offer less privacy to tenants because of shared walls or common areas such as a central laundry room or parking lot.

Single-family homes have risen in popularity recently, especially as millennials with growing families seek more space and room for remote work. However, rents in many markets are outpacing affordability, turning many to multifamily rentals instead.

Multifamily Asset Classes

Multifamily property is generally categorized into one of three asset classes:

• Class A multifamily property is a new building with state-of-the-art amenities in the best locations. These properties cost the most to buy but also command the highest rents.
• Class B multifamily buildings are in good condition with average amenities. Apartment buildings like these often lie in middle-income neighborhoods. They provide a decent balance of risk and reward, with at-market rents and a lower acquisition cost than brand-new property.
• Class C multifamily property is basic housing with minimal amenities in lower-income areas. Also known as “cash cow”apartment buildings, Class C rental property offers below-market rents and is the least expensive for an investor to purchase.

Benefits of Multifamily Real Estate

Multifamily real estate can benefit first-time and experienced commercial real estate investors.

Scaling up a real estate portfolio is much simpler with multifamily buildings thanks to their multiple units or “doors.”

Rather than one central tenant, dozens of tenants make financing easier than other commercial real estate types, and property management fees are spread across multiple units instead of a single house.

• Investors can choose from various multifamily product types, from a 4-plex to bigger apartment buildings and niche multifamily properties such as student housing.
• Investors receive multiple cash flow streams from multifamily real estate because one facility generates rental income from each unit.
• Value-add multifamily investing is easier because units can be renovated individually and generate incremental revenue from appliance rental or amenity upgrades.
• There can be less risk with investing in multifamily property over other CRE types: people always need a place to live, and renting an apartment is often cheaper than renting a house.
• Streamline the potential for passive income from multifamily  by hiring a local property manager to handle the day-to-day responsibilities.

Potential Drawbacks to Multifamily Investments

While investing in multifamily real estate has plenty of benefits, there are also some potential drawbacks.

• Buying a multifamily investment requires more up-front capital because property prices are usually higher. However, the cost per unit of a multifamily building is often less than buying a single-family house.
• The amount of money needed in a CapEx account (capital expenditure) may also be more considerable to ensure emergency funds are available if multiple units require repairs simultaneously.
• Competition from other investors for well-positioned multifamily property can be more intense in some real estate markets. For this reason, many first-time CRE investors may focus on small two- or three-unit multifamily buildings to add to their portfolios.

How to Finance Multifamily Investments

Many beginner multifamily investors are surprised to learn that lenders are more likely to approve an apartment building loan than a single-family rental loan. That’s because banks focus on the monthly cash flow a property generates.

If the tenant in a house leaves, the vacancy becomes 100% with zero cash flow. On the other hand, if one unit goes vacant in a 20-unit apartment building, the vacancy rate is only 5%, with plenty of cash flow remaining to pay for operating expenses and the mortgage.

Some options for financing multifamily investments include:

• Conventional loans can be the best choice for buying small multifamily buildings with two to four units.
• Government-backed mortgage loans for multifamily assets from Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) are good options for small multifamily properties and buildings with five or more units.
• Portfolio loans are non-conforming loans that offer multifamily investors more flexibility in loan terms and conditions. Investors can use them to finance multiple multifamily properties at the same time.
• Short-term multifamily financing options like hard money and bridge loans are best for investors buying multi-unit residential property. These are especially useful if a building requires significant renovation or the owner is repositioning other types of commercial real estate, like turning a hotel into a multifamily property.

Best Markets for Investing in Multifamily in 2024

Some real estate markets are better than others for buying multifamily property—cities with strong population growth and a diversified economy should perform best in the years ahead.

Here are some of the top cities for potential multifamily investing based on current market performance, per Crexi Intelligence:

1. Louisville
2. San Diego
3. Raleigh/Durham
4. Charlotte
5. Chicago
6. Atlanta
7. Denver
8. Dallas
9. Phoenix
10. Nashville

Multifamily Trends for 2024

Multifamily has outperformed almost every other asset class of commercial real estate. Looking ahead, three key trends to consider when investing in multifamily property are:

• Construction delays and the economic feasibility of new multifamily developments in some cities slow the delivery of new buildings, creating an imbalance between supply and demand. Investors can expect prices to rise over the next several years due to demand from tenants and other real estate investors.
• Millennials are a vital renter demographic and may continue to turn to multifamily as a place to live as single-family homes become more expensive.
• Secondary markets may offer more affordable multifamily properties with better yields and cash flows. Inbound migration from expensive urban areas to small, more affordable cities keeps population growth healthy and local economies robust.

The Bottom Line

Although multifamily investing may seem complicated to first-time CRE investors, the opposite is usually true. Multifamily buildings come in all shapes and sizes and can be easier to finance than other income-producing real estate types. Buying multifamily property is also one of the easiest ways for new commercial real estate investors to start and grow a rental property portfolio.

Source: Why New Buyers Start with Multifamily Investments

https://www.creconsult.net/market-trends/why-new-buyers-start-with-multifamily-investments/

Unlocking Value: eXp Commercial and Taxonics Partner to Optimize Your Commercial Property Tax Strategy

Unlocking Value: eXp Commercial and Taxonics Partner to Optimize Your Commercial Property Tax Strategy

Navigating the complexities of commercial property taxes can be a daunting task for even the most seasoned investor. Overvalued assessments, opaque regulations, and ever-changing deadlines can quickly drain your bottom line and hinder your property's potential. At eXp Commercial, we understand the challenges you face, and we're committed to equipping you with the tools and expertise to optimize your property tax strategy and maximize your investment's value.

That's why we're thrilled to announce our partnership with Taxonics, a leading national platform for professional and cost-effective property tax management. More than just tax processors, Taxonics is a team of seasoned real estate tax specialists who leverage cutting-edge technology and comprehensive data analysis to deliver a data-driven approach to your tax needs.

Here's how Taxonics can empower your commercial property portfolio:

• Expert Assessment Analysis: Taxonics meticulously reviews your property assessments, identifying potential overvaluations and uncovering inconsistencies that could lead to unfair tax burdens. Their proven methodologies and deep understanding of local tax landscapes significantly increase your chances of securing a fair and accurate valuation.
• Proactive Tax Appeal Strategies: When overvaluations are identified, Taxonics doesn't just point them out – they take action. Their team of experienced professionals crafts and executes strategic tax appeal strategies, working tirelessly to ensure you receive a fair assessment and optimized tax bill.
• Enhanced Transparency and Control: Gain complete control over your property tax management with Taxonics' secure online platform. Access detailed assessment data, key deadlines, and communication history 24/7, enabling informed decision-making and proactive oversight of your tax obligations.
• Unleashing Cash Flow and Boosting Property Value: By minimizing your tax burden, you free up valuable resources that can be reinvested into your property, boosting its profitability and attractiveness to potential investors. This translates to a higher appraised value and a more competitive asset in the market.
• National Reach, Local Expertise: No matter your portfolio's size or geographic footprint, Taxonics' extensive network and deep local knowledge ensure seamless and effective service. Their team is intimately familiar with the nuances of local tax codes and assessment practices, ensuring you receive the most advantageous solutions wherever your properties reside.

eXp Commercial and Taxonics – A Partnership for Growth:

Our partnership reflects a shared commitment to empowering commercial property investors with the tools and expertise they need to maximize their returns and achieve their investment goals. By leveraging Taxonics' comprehensive suite of services, you can:

• Minimize tax liabilities and protect your bottom line.
• Maximize your property's value and market competitiveness.
• Focus on strategic investment decisions with complete financial clarity.
• Gain peace of mind knowing your tax obligations are handled by experienced professionals.

Take Control and Unlock Your Property's Potential:

Don't let property taxes be a roadblock to your investment's success. Take control and explore the benefits of Taxonics with eXp Commercial.

Schedule a free consultation with a Taxonics expert and unlock the true power of your property tax management

Tax Appeal Review Form

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15 Tips for Transforming Old Buildings Into Profitable Investments

Although some investors prefer finding new construction, there are many benefits to investing in older buildings. Reclaiming an old building can be more environmentally friendly , and saving old architecture preserves the culture and character of an area.

Preserving a building comes at a cost, but getting a good return on your money is possible. From the initial purchase to the final coat of paint, here are 15 tips to help transform a historical marvel into a profitable investment.

1. Profit Starts with Research

Researching and conducting proper due diligence on an older building, based on sales comparables, can also help you determine its worth so you don’t end up overpaying. Many older buildings also come with funding options and rehab incentives at the state and federal levels, such as rebates, tax credits, and low-interest loans. Research which you might qualify for.

2. Get a Historical Value Assessment

Just because a building is old doesn’t mean it’s historical. Get a value assessment to determine if it has historical significance. If a building is historical, it’s critical to research potential roadblocks to making changes to the exterior. Strict restoration guidelines can impact your return on investment.

A historical value assessment can also help you determine how much money you can make on a flip. Too many restrictions mean costly updates that eat away at profits.

3. Assess the Structure

Hire an expert to thoroughly inspect the building for problems with the foundation, the roof, the interior walls, and the systems. Very few older buildings are without issues, but if you plan on flipping the structure, significant problems can severely impact your return on investment. That’s not to say you shouldn’t pursue an older building, but going in with your eyes wide open is always the best strategy.

4. Use Cash

Borrowing money will cost you. When possible, buy an older building with cash. Doing so minimizes interest costs on even a short-term mortgage. Cash is also king when bidding in a competitive market. Sellers may be more inclined to go with a cash offer, especially if it will speed up the sale.

5. Negotiate Rates

Closing costs and realtor commissions can take a big piece of your budget. Remember this when negotiating rates, as the more you can save, the more money you will have to spend on the renovation.

6. Choose What to Renovate Carefully

To maximize your profit, focus on updates that will bring you the best return on investment. Kitchens and bathrooms are often the most popular renovations among buyers, but you also have to get them in the door – which means you can’t neglect exterior improvements. Simple improvements, such as updated landscaping, a new front door, and modern house numbers, go a long way in getting buyers interested in your older building.

7. Consider Adaptive Reuse

In some cases, it doesn’t make sense to restore an older building. Instead of tearing it down, consider adaptive reuse: updating the building to suit a new purpose. For example, an old tobacco warehouse could become an art gallery or a distillery with a tasting room.

8. Integrate Modern Amenities

Old buildings can be drafty, creaky, and challenging to utilize comfortably. Installing modern amenities — such as new windows, new heating and cooling units, smart sensors, and updated security systems — enhances a building’s appeal and increases its market value.

9. Go Green

Energy-efficient upgrades are one way to bring your old building into the new millennium. Adding high-quality windows, better insulation, new appliances, and Energy Star-certified heating and cooling systems means savings on utility costs. These upgrades can also be a great way to market to environmentally conscious buyers.

10. Get Smart

One major appeal of new construction is that smart features are often built into new buildings. Smart-home technology and building automation systems are convenient for investors and tenants. They reduce operation costs and manage energy consumption when installed in older buildings. Additionally, smart locks and remote thermostat controls help keep the building safe and comfortable when owners and residents are away.

11. Make it Look Pretty

Adding modern aesthetic touches to an older building balances the charm of a bygone era with the clean lines and palettes of today’s real estate. Updating the look of a building can be as simple as repainting rooms or replacing fixtures. Upgrades can even extend outside with new modern landscaping features.

12. Highlight Old-World Charm

The beauty of an old building lies in its unique architectural features. Exposed brick walls, original hardwood floors, intricate moldings, and unusual exterior trim can be retained and highlighted when you market to prospective tenants.

13. Increase Safety

Older buildings often passed safety standards with a wink and a nod. Upgrade to current building codes with new electrical systems, smoke detectors, and suitably located fire exits. It’s the law, but it’s also a selling point that protects buyers and tenants.

14. Build Universally

Universal building means adapting a property to be accessible to everyone, regardless of physical capabilities. This widens your potential pool of buyers or tenants because it allows people of all abilities to use the building.

15. Add Community Amenities

Consider adding community amenities to transform old apartment buildings into places that feel more like modern homes. These amenities include creating an outdoor gathering space, investing in a building-wide recycling program, adding a fitness center, or incorporating business services, such as docking stations and package delivery systems.

The Bottom Line

Transforming an older building into a desirable, modern property takes creativity and perseverance. Investors must strike a delicate balance between historic preservation and modern convenience, and they must also understand what the local market needs.

With a bit of care and thoughtfulness, these often overlooked properties can become a highly profitable investment in the right hands. It’s work worth doing. Preserving a varied tapestry of architectural styles gives each area its character and beauty.

 

Source: 15 Tips for Transforming Old Buildings Into Profitable Investments

https://www.creconsult.net/market-trends/15-tips-for-transforming-old-buildings-into-profitable-investments/

Mastering the Art of Expensing & Accelerating Depreciation Course

Join eXp Commercial's Cost Segregation Partner CSSI for a comprehensive exploration of the intricate world of cost segregation and gain valuable insights to demystify the application of Tangible Property Regulations, resulting in significant reductions in your taxable income.

COURSE DESCRIPTION

Prepare for a comprehensive exploration of the intricate world of cost segregation and gain valuable insights to demystify the application of Tangible Property Regulations, resulting in significant reductions in your taxable income.

Unlock the artistry behind these regulations to maximize their advantages. We will dissect the most prevalent depreciation and expensing opportunities for clients who own and develop commercial real estate and short-term rentals.

Whether it's Commercial Buildings, Apartment Complexes, Long-Term or Short- Term Rentals, Disposition of Materials, or Interior Renovations, each presents unique opportunities for expensing and accelerating depreciation, provided you have a foundational grasp of the regulations and access to the requisite cost data.

Rather than drowning in the complexities of regulations as is often the case in presentations, we will utilize real-world scenarios encountered by building and short-term rental owners to assist you in crafting a strategy for expensing and accelerating depreciation, including leveraging Bonus Depreciation.

An integral aspect of our sessions is addressing your specific queries to empower you in confidently applying these regulations to meet your client's precise requirements.

Hundreds of Tax Professionals have consistently rated CSSI's team of presenters and content as excellent. We cordially invite you to join us for an engaging 1.5- hour discussion filled with strategic insights and ample time for addressing your inquiries. CPE credits are available for CPAs through our NASBA certified provider.

LEARNING OBJECTIVES

By the end of this lesson, attendees will be able to discuss advanced depreciation and expensing strategies related to cost segregation, including:

·     Common scenarios for expensing and accelerating depreciation using the Tangible Property Regulations and Cost Segregation
·     Advantages of Short-Term Rentals
·     When to use Bonus Depreciation vs Section 179a
·     Renovation Depreciation -- When to use Partial Asset Disposition (PAD) and Qualified Improvement Property (QIP)
·     Grouping Opportunities

REGISTRATION INSTRUCTIONS

·     You must register for and attend the entire session to receive CPE credit.
·     A course evaluation must be completed to receive CPE credit.
·     Group attendance will not be recognized. Each attendee must be logged in individually to receive credit.

Cost:
None

Subject Area:
Tax

CPE Credits:
1.5 Hours

Who Should Attend:
CPA - small firm
CPA - medium firm
CPA - large firm

Instruction Method:
Live Webinar

Time:
10:00 am Central time

Instructors:
David Deshotels
Robert Taylor

Webinar Date:
December 5, 2023 | 10:00 am Central

Register Here

 

https://www.creconsult.net/events/mastering-the-art-of-expensing-accelerating-depreciation-course/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

5 Key Trends Shaping the Rental Housing Market in 2024

As 2024 nears, the rental housing market grapples with challenges and opportunities in a fluctuating economic landscape, shaped by inflation and rising costs. Here are 5 key trends expected to influence the sector in the coming year.

1. Market stabilization: The rental market in 2024 is expected to continue the stabilization trend seen in 2023, following a period of high demand. However, this stability will not be uniform across all regions. Local market conditions, influenced by factors such as pandemic-era policies and economic circumstances, will lead to varied trends in different areas. This regional divergence is a critical trend to watch as it will dictate market strategies for housing providers.

2. Supply and demand: A significant trend in the rental market is the ongoing construction of new rental units, which is expected to balance and potentially lower rental rates. This influx addresses the longstanding issue of housing undersupply. However, a recent decline in construction permits suggests this increase in supply may not sustain, potentially leading to a quicker absorption of new units and a rise in demand. The future of supply dynamics remains a key factor in shaping the market.

3. Mortgage rates: With homeownership becoming increasingly unaffordable due to high mortgage rates and soaring property prices, more people are turning to renting. This shift has reinforced the rental market’s strength, making it a more attractive and financially feasible option for many. The gap between the costs of owning and renting is a major trend that will likely maintain the high demand for renters.

4. Economic uncertainties: Global economic challenges, including persistent inflation and geopolitical tensions, are impacting individuals' decisions regarding housing. Many are delaying home purchases, leading to increased demand for rental housing. This trend underscores the rental market's sensitivity to broader economic factors and highlights its role as a buffer in times of economic uncertainty.

5. Operational costs: Rental housing providers face increased pressure from rising operational costs, including interest rates and insurance premiums. Adapting to these financial pressures through effective insurance management, investments in property resilience, and leveraging AI for operational efficiency is becoming increasingly crucial.

➥ THE TAKEAWAY

Looking ahead: The rental housing industry stands as a resilient and essential player in the commercial real estate world, despite facing a mix of challenges and uncertainties. Supported by a robust job market and increasing wages, the industry is well-equipped to handle short-term pressures that may squeeze profit margins. As 2024 approaches, the sector is not just prepared to tackle forthcoming challenges but is also strategically positioned to seize new opportunities, further cementing its vital contribution to the overall economy.

 

Source: 5 Key Trends Shaping the Rental Housing Market in 2024

https://www.creconsult.net/market-trends/5-key-trends-shaping-the-rental-housing-market-in-2024/

Commercial Real Estate Prices to Remain Low for the Foreseeable Future

Property values might start rising up to two years following a sales activity rebound.

 

Commercial Real Estate Prices Unlikely to Reach a Bottom Any Time Soon

The U.S. commercial real estate market is facing a continued sales decline due to high-interest rates and investor caution. While some experts have called for a bottom soon, history tells a different story in property prices.

Where we are now: Investors are currently adopting a wait-and-see approach due to the uncertainty brought on by higher borrowing costs. This cautious stance has slowed down the price discovery process in commercial real estate. Historical patterns suggest that it may take time for sales activity to pick up and for prices to stabilize. CoStar's research delves into previous commercial real estate market downturns, providing insightful projections on the expected recovery timeline.

Office sector: Looking back at the 2007 downturn, office real estate transaction volumes peaked and then significantly declined, taking two years to hit a low. Despite a 63% increase in transaction volumes over the following two years, office prices per square foot continued to drop, indicating that increased transaction flows can exacerbate price declines.

Industrial and Retail sectors: Similar trends were observed in the industrial and retail sectors. The industrial market saw a 61% decrease in deal flow, followed by a significant increase in transactions but a continued decline in overall value. Retail properties experienced a recovery in transaction counts, but it took even longer for retail prices to reach their lowest point, demonstrating a lag between transaction recovery and price stabilization.

Multifamily resilience: The multifamily sector deviates from these patterns. Due to its short lease structures, this sector is more responsive to economic changes. In the last downturn, transaction volume slowdown and price declines in multifamily occurred simultaneously, with prices stabilizing much faster than in other sectors. This rapid adjustment could offer insights into the broader commercial real estate market's future trajectory.

➥ THE TAKEAWAY

Where is the bottom? The past may be a precedent. The current state of the commercial real estate market suggests that prices may not bottom out soon. Based on historical data, it could take up to two years after a rebound in sales activity for property values to start increasing. The multifamily sector's quicker response in past downturns might provide some clues, but overall, the market is likely to experience continued price adjustments in the near future.

Source: Commercial Real Estate Prices to Remain Low for the Foreseeable Future

https://www.creconsult.net/market-trends/commercial-real-estate-prices-to-remain-low-for-the-foreseeable-future/