Why You Should Invest in Multifamily Real Estate Today
Why You Should Invest in Multifamily Real Estate Today
At Breneman Capital, we have been investing in multifamily properties for 15+ years. We seek to deploy capital into assets in growing desirable markets with the goal of generating cash flow and building long-term wealth for our investors.
We take a research-based approach to narrow down which specific markets will be the top-performing markets for the next decade and aim to methodically penetrate those markets through intense knowledge of every individual property in the market that fits our investment criteria and by placing great emphasis on creating local relationships with brokers, independent contractors, and other industry professionals.
What is Multifamily Real Estate
Multifamily properties provide housing for multiple families or individuals, such as apartment rental properties and condos. Breneman Capital focuses on acquiring for rent multifamily properties.
Historical Performance
In a Breneman Capital study of historical real estate investment returns per NCREIF, Multifamily outperformed all major commercial property types between 1990-2020. We measured all possible return scenarios for 3, 5, 7, and 10 year holding periods, and Multifamily overwhelmingly provided investors the highest average return and the least volatility when compared to the Industrial, Office, and Retail sectors.
Multifamily had the highest average investment return of all hold period scenarios. It also had the lowest return standard deviation in all scenarios except for the 10 year. Investors should have confidence that their commitment to Breneman Capital will be in the form of an exceptional risk-adjusted investment.
Average 7 Year Annualized Returns vs. Annualized Return Standard Deviation
1990-2020 (Data Source: NCREIF)
Population and Consumer Trend Tailwinds
Current Renters Renting Longer:
Our culture and country are changing. Homeownership is declining, and people are waiting longer to get married and become parents, which expands the time in their lives where they typically rent, leading to a greater need for multifamily rental properties.
Significant Portions of the Population Entering The Rental Market:
Young: Gen Z, born between 1998 and 2012, make up approximately one-third of the U.S population and will soon enter the rental market.
Old: 10,000 individuals turn 65 years old every day. At this age, many seniors tend to look to downsize from their homes and move to rental communities that offer flexibility and require less hands-on maintenance.
Multifamily Holds Up Better Over the Long Term in Remaining Functionally Relevant
“Everyone has to live somewhere” is a common saying. Still, the multifamily sector’s proven resilience to functional obsolescence should not be relegated to just an expression – we have data to back it up. In a Breneman Capital study of over 300,000 properties, we measured vacancy rates for older generations of properties (built before 1991) against newer generations (built 1991-2010). For the period between 2014 and 2021, multifamily demonstrated the best fundamentals and performed 3x better than industrial, 6.5x better than office, and 8x better than retail.
Average Vacancy Rates of U.S. Properties 2014-2021 (Data Source: CoStar)
Change in tenant preferences will always be a constant force in real estate, and advancements in the way we live, shop, and conduct business will manifest as new supply enters the market. What is apparent, however, is that this phenomenon affects the four major real estate sectors disproportionately, and many old features of the commercial sectors render properties as functionally obsolete. For example, retail has seen a steady evolution for what is deemed most desirable, shifting from corner stores to department stores, shopping malls, and now to street retail focused on experience and uniqueness. Industrial (need for efficient distribution changing requirements for clear height, loading, access to critical infrastructure) and office (need for modern amenities and space for creativity/collaboration, and emerging technologies making work-from-home more prevalent) have also seen shifts. Multifamily is not entirely devoid of changes in tenant preferences. Still, so long as an apartment unit has the bare essentials (kitchen, bathroom, bedroom(s), living space), it will remain marketable. Moreover, no significant disruptions or technologies will supplant housing; hence “everyone has to live somewhere.” As we make a case for long-term investing in multifamily, rest assured today’s investments will remain relevant in the future.
Resilience and Diversification of Rental Income
Multifamily properties are not reliant on only a few tenants to pay the rental income like many commercial properties are. Having a wide range of individuals paying the rent creates an extraordinarily strong income stream that is diversified over dozens if not hundreds of individuals with different sources of their incomes all paying rent. This diversification allows multifamily to perform well in economic downturns as well.
For this reason, Breneman Capital steers clear of properties with a concentration of employment types and employers. We want diversification, which is why we collected 99%+ of our rental income during the Covid-19 pandemic.
Performs Well When There is Inflation
Apartment leases are typically 12 months long. Commercial leases are often 5 to 10 years long. Having a 12-month long lease allows property owners to quickly adjust their rents up in times of inflation when prices are rapidly rising.
Best and Most Competitive Debt Availability:
All else being equal, better debt terms generate higher equity investment returns. More lenders are willing to lend aggressively on multifamily than any other product type. The Government Sponsored Enterprise (“GSEs”) of Fannie Mae, Freddie Mac, and HUD only finance residential properties. Having the GSE’s in the multifamily debt market creates a more robust debt capital market that only exists for multifamily properties and does not exist for the other investment real estate product types. All of the other typical lenders: banks, CMBS, debt, funds, life companies, etc., all have a significant emphasis on lending on multifamily, but they must compete with the GSE’s when it comes to rate and terms. Lenders must be creative and aggressive with their terms to win business on a multifamily property. This competition enhances the interest rate and terms a borrower can receive on a multifamily property - especially for an experienced owner and operator of multifamily properties.
How We Find and Buy Properties
At Breneman Capital, we find opportunities before they hit the market and take advantage of well-researched population trends and shifts in cultural ideologies — turning them into successful investments for passive investors year after year. We take advantage of our hard-earned reputation as an honest leader in multifamily real estate investing and benefit from relationships with brokers and sellers we’ve successfully worked with in the past.
Breneman Capital For You
Breneman Capital is a data-driven multifamily investment firm pushing the real estate industry into the future with a modern approach to direct real estate investments.
We focus on providing our investors with the best risk-adjusted investment opportunities in carefully selected markets across the U.S., researched and underwritten with extreme detail from our headquarters in Chicago.
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