If you have been following us for any length of time, you probably know that we are extremely optimistic about the investment potential in commercial-grade, multi-family (apartment buildings) real estate, particularly when there is potential for value-add (hint: it’s all in the value- add!)
There are undoubtedly other real estate assets apart from multi-family out there that do very well in terms of investments. So why do we put so much emphasis on multi-family right now?
When developing the CalTier platform, we wanted to start with an asset class that included a number of characteristics:
- Positive cash flow with potential growth
- Historically high rates of return
- Large barriers to entry (that we could remove) for the everyday investor
- Consistently solid fundamentals, both now and in the future
- Traditionally resilient against market swings
- An attractive substitute for the typical stocks, bonds, and mutual funds investments
We believe that one of the reasons for those high rates of returns is that according to MHN Special Report 2023:
“Millions of new rental units will be needed by the next decade and according to a recent estimate by the U.S. Census Bureau, from 2017 to 2021 renter households spent at least 30 percent of their income on rent and related expenses.”1
From our point of view, larger multi-family or apartment buildings pass all of these tests and more. According to the CRBE’s Report on U.S. Multi-Family Housing:
“In addition to multi-family’s strong underlying fundamentals and an average annual total return of 9.3% over the past decade, the sector also benefits from Fannie Mae and Freddie Mac—debt sources that are not available to other sectors. As the market stabilizes in 2023, more investors and lenders will deploy capital in one of the best asset classes for hedging inflation concerns”2
Positive Cash-Flow and Potential Upside
One of the benefits of investing in existing multi-family properties versus developing new multi-family units is that typically the units are already leased up with in-place rents that can produce positive cash-flow very early on in the property’s life-cycle. In some instances, we can simply improve upon operational deficiencies, perform light interior or exterior renovations, improve the property’s amenities, or engage in other value-add activities in order to increase the value and produce greater cash flow. These can be done fairly early on in the process and do not require going through an extensive entitlement or approval process. Larger improvements can be done in phases or over time to create additional value.
Homeownership is becoming increasingly further out of reach
With rising interest rates and increased home prices, the cost of owning a home has become dramatically more unobtainable and expensive than renting.
Paula Munger, assistant vice president of industry research and analysis for NAA, observed that homeownership before the pandemic cost $280 more per month on average than renting. At the end of 2020, that had risen to $375 per month. Fast forward to 2023, the monthly cost of owning a home has become even more expensive than renting, making it out of reach for many potential home buyers pushing them into the rental market.
According to the MHN Special Report 2023:
“Millions of new rental units will be needed by the next decade.”
In many markets, this shortfall is due to the high costs and challenges of building new units.
Dustin Read of Clemson points out that:
“Supply and demand are out of whack for many of the inputs that go into multifamily housing units, and those imbalances are driving up the cost of bringing new units to market.”
Additionally, a landmark study commissioned jointly by the National Multifamily Housing Council and the National Apartment Association has identified the sobering scale of the shortfall. By 2035, the industry will need to add 4.3 million new units. At the current pace of production, the industry is 600,000 units behind.
With years of underproduction of multi-family units, the supply is far from catching up to the number of multi-family units needed. With this discrepancy, it makes the need for clean and affordable units even greater, something we strive to focus on.
We have been diligently building a portfolio of multi-family assets that generate positive cash flow, both on our own and with the help of our first-class real estate partners through participating investments. To date, we have invested in 17 properties totaling over 2,170 multi-family units (two of which, Solano Vista and The Vue, have already completed a full life-cycle from acquisition to sale) and a multi-family portfolio fund.
Founder and COO
CalTier Opens The Door
An initial $500 investment or more is all it takes to get started, and you can make subsequent investments of $50 or more as your finances allow. You may additionally set an auto-invest and let the platform do the work for you.
*2 Mathew Vance, Americas Head of Multifamily Research, CBRE, https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/multifamily
John Salustri, Special Report: The Apartment Shortfall, https://drive.google.com/file/d/1UBIT4z0fbD53AoEDrkq_yc3YBwDTO1Cf/view?usp=share_link