Why Multifamily Now?
Favorable Supply and Demand Fundamentals
U.S job growth has surged recently and the unemployment rate has dropped to 3.6% the lowest since 1969. The economy is in a period of expansion. Job gains are increasing at an above average rate to keep up with the growth in the working-age population.
Echo-boomers, Generation Y and Millennials are the 20/30’s children of the Baby Boomers. The have
become the largest generational demographic group in the U.S. Millennials enjoy mobility, amenities and inner-city location that renting apartments provide. Young adults are settling down entering
marriage five years later than they did in 1980. Their homeownership rate is
slightly lower, with 35 percent owning homes, compared to 41% in 1981. Trends
suggest more young adults are renting than previous generations at the same
stage in life. Economic issues such as high unemployment rates of the past 10 years,
as well as the growing burden of student debt, have been barriers in creating
traditional households..
The market requires the construction of approximately 4.6 million apartments by 2030 to keep up with demand. However, the 2008 housing market collapse and economic recession brought apartment construction to a near halt for a number of years. While construction has ramped up in recent years, with thousands of new projects under construction, the construction rate remains well below historical averages and the level needed to meet demand. Multifamily builders and developers are seeing strong demand, but unforeseen headwinds-rising construction costs due to tariffs, rising interest rates, and already tough lending standards impact further developmen
Homeownership in America is not as common as before- especially for today’s young adults. The homeownership rate fell to 63% in 2016 the lowest rate in half a century. Contributing factors for the decline are due to the delay of marriage, student loan debt, and lower paying jobs. Market affordability and stringent mortgage underwriting standards increase barriers to homeownership and pushing households into apartments. With approximately 114 million households in the U.S., every 1% decline is equal to 1.14 million units of additional rental demand.
Favorable Multifamily Characteristics
Low Volatility/Transparency
Multifamily Residence have historically experienced much lower volatility compared to market rents, vacancies, and valuations than other property types. In addition, MFR’s have limited revenue concentration risk. Unlike other property types, where individual tenants can occupy a large portion of the asset, revenue decline from any one multifamily tenant vacating minimally impacts gross revenue. Transparency Monthly leasing activity and shorter lease terms result in continuously updated data on market rents
Attractive Financial Returns
ACG’s Multifamily investments seek to achieve a rate of return in excess of typical alternative investment returns. Current bank savings account interest rate are sitting at 1-2% while stock dividend yields hover around 3-4% or less annually. However, when you invest with ACG, you start receiving income almost immediately. Our investors receive distribution checks equating to 6- 7% cash-on-cash return. In addition, many multifamily properties continue to appreciate.
Strong Financial Commitment from the Principals
ACG offers preferred returns to investors and subordinate our returns to investors. This means we don’t make money until our investors make money.. We also invest our own money in each deal alongside its investors.
Real Estate Ownership
Investors receive all the benefits of real estate ownership with none of the management headaches. Appreciation Depreciation Loan Principal Paydown
Inflation Hedge
Inflation decreases your buying power, but an inflation hedge— Multi family ownership—protects you from it. inflation hedging typically involves investing in an asset expected to maintain or increase its value over a specified period of time. The average inflation rate over the last 10 years was 1.6% with a 2% annual inflation target rate according to the Federal Reserve. “The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term”. This results in a devaluing of savings and reduction of purchasing power by 2% a year. This means that a 10% return on investment in the stock market, is actually 8%over the same time period. That’s why real estate is considered an excellent hedge against inflation. Commercial real estate values are based upon net income and a market capitalization rate. Rents and expenses historically rise with inflation. A major benefit of multifamily properties is the short term lease agreements, with tenants potentially turning over more frequently. Lease turnovers allow management to increase rents in alignment with prevailing market rates and inflation. As active asset managers, ACG enjoys increased protection by minimizing vacancy exposure during economic downturns.
Tax Advantages (Depreciation and Cost Segregation)
One of the tax benefits multi-family property can provide is the ability to deduct depreciation of the property from your taxable income. Usually, the amount you are able to deduct is calculated based on the federal depreciation table and MACRS class lives for the property. Multi-family properties classified as residential rental real estate can be depreciated over the course of 27.5 years. Depreciation typically includes the cost of the building and improvements less the amount allocated to the land. While you are certainly able to depreciate the value of the property over 27.5 years, you will find that cost segregation allows you to maximize your tax benefits and improve your cash flow by accelerating depreciation over a shorter period of time. Instead of looking at the building or property as a whole, a cost segregation study allows for the division the property into distinct assets such as window treatments, carpets, and even landscaping, many of which have a shorter useful life than the building as a whole. This allows you to depreciate different assets of the property over a shorter life, increasing deductions that offset income in the early years of ownership, and taking advantage of the time value of money.