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The Ups and Downs of Multi-Family Assets: What You Need to Know in 2023

October 13, 2023โ€ข3 min read

"Choosing the right market for your investment is like picking the right weapon in a video game. Make sure it's a power-up, not a pitfall." - Rise Capital

The Ups and Downs of Multi-Family Assets: What You Need to Know in 2023

Let's dig into something that might sound complex but is super important if you're thinking about putting your money into apartment buildings. The good news? We'll break it down so it's as easy as understanding the rules of a video game.

What's Net Absorption and Why Should You Care?

First, let's talk about Net Absorption. This term is like keeping score in a game. It tells you how many apartments got rented out (moved into) minus how many got vacated (moved out of). If more people are moving in than moving out, that's positive net absorption. But if it's the other way around, that's negative.

In 2022, there was negative net absorption. Why? Well, many people decided to stay put in their current apartments, renewing their leases 56% of the time. That's higher than before the pandemic. Others decided to move in with roommates or family. ๐Ÿ‘จโ€๐Ÿ‘ฉโ€๐Ÿ‘งโ€๐Ÿ‘ฆ

Impact on Rent

When there's more demand (people moving in), landlords can charge higher rent. ๐Ÿ“ˆ But if more people are moving out, they might have to lower the rent to fill those empty apartments.

What About Deliveries and Starts?

Okay, next term: Deliveries and Starts. Deliveries are new apartments that are ready to be lived in. Starts are new apartments that builders have just begun to construct. ๐Ÿ—๏ธ

If lots of new apartments are getting delivered or started, that's usually because builders expect more people to move to the area. Just like in 2023, where more than 198,800 new units were completed in the first half of the year alone!

Impact on Rent

New apartments usually mean higher rent because they're all shiny and new. But, if too many new apartments are built and there aren't enough people to fill them, rent might actually go down.

When Deliveries Outpace Absorption Rates

If more new apartments are being built (deliveries) than people are moving in (absorption), it's like a video game where you have more lives than you know what to do with. It's fun for a while, but it can also mean that the market is getting too saturated, which might make rents go down. ๐Ÿ“‰

Why This Matters for Your Investments

So you're probably asking, "Why should I care?" Well, if you're thinking about investing in apartments, you want to pick markets where demand is high and supply is just right. Places like Phoenix, Houston, and Dallas-Fort Worth are doing great because they have jobs and affordable rents.

Berkadia Graph

*Source: Berkadia Research and Resources

Final Takeaway

Choosing where to invest is like choosing the right weapon in a video game. You want something that gives you the most points with the least risk. Understanding terms like net absorption and deliveries can help you level up in your investment game.

So, what markets are you looking at for your investments? Let me know in the comments!

Happy Investing! ๐ŸŽฎ๐Ÿ’ฐ

net absorptionconstruction startsconstruction deliverieseffective rent change
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Christopher Borden

Chris Borden is a seasoned executive with over 25 years of business expertise spanning operational, financial, marketing, and commercial real estate strategies. Previously President of Hawaii's second-largest retail food chain, Chris has transitioned from his earlier roles to become a leading figure in the real estate investment sector. Alongside managing six businesses focused on real estate investing, Chris and his wife have founded two non-profit organizations aimed at bolstering education and economic growth in underserved regions. A proud family man, Chris has transacted over $14 million in investment debt loans in the first year and a half and expanded into large commercial investments totaling over 500 units. His dedication, industry acumen, and adaptability have earned him a reputation as a reliable and trustworthy partner in the sector.

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