June 26, 2025 • 16 mins
The multifamily real estate landscape has transformed dramatically, creating both unique challenges and hidden opportunities for investors willing to look beyond conventional wisdom. This deep dive unpacks the fascinating paradox shaping today's market: an unprecedented "supply tsunami" of new apartments hitting the market amid surprisingly robust tenant demand.
We break down exactly why this is happening—mortgage rates have created "golden handcuffs" for homeowners, keeping them locked in place with sub-5% loans while making new home purchases financially unreachable for many Americans. Rental payments now average 45% less than comparable mortgage payments, fundamentally altering the housing equation. Yet this supply surge is temporary, with construction starts projected to plummet 74% by mid-2025, setting the stage for those positioned correctly today.
Through comprehensive research from Freddie Mac, CBRE, and JP Morgan, we distill multifamily investment success into eight critical factors that separate winners from losers in this evolving marketplace. From forensic-level financial analysis to anticipating regulatory shifts before they happen, we explore how property condition assessments, unit mix optimization, and exit strategy planning create a cohesive framework for investment decisions. We reveal why property management quality often trumps location advantages, how post-COVID demand for home office space is reshaping tenant preferences, and why environmental concerns have shifted from nice-to-know to need-to-know status.
Whether you're a seasoned investor or considering your first multifamily acquisition, these insights provide a sophisticated roadmap for navigating market complexities with confidence. The opportunity in multifamily remains tremendous, but success demands "the rigor of a business analyst, the curiosity of a researcher, and the patience of a long-term wealth builder." How will you leverage these insights to differentiate your strategy in this evolving landscape?
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Deep Dive, where we cut through the
noise and get straight to theinsights.
Speaker 2 (00:04):
Ah, to be here.
Speaker 1 (00:05):
So today we're dining into multifamily real estate
investing.
It's a world that seems to bein constant flux.
Speaker 2 (00:12):
It really does.
Speaker 1 (00:13):
From your perspective , what are the biggest, maybe
even unprecedented, shiftshappening right now?
Supply-demand what's thepicture?
Speaker 2 (00:21):
Well, the headline grabber is definitely the supply
side, no question.
Speaker 1 (00:26):
Okay.
Speaker 2 (00:27):
We're actually seeing the highest influx of new
apartments hitting the marketsince well since the 1980s.
Speaker 1 (00:32):
Wow, since the 80s.
Speaker 2 (00:33):
Yeah, it's a real supply tsunami, if you will,
Okay.
Yet what's really striking isthat tenant demand.
It remains incredibly robust,resilient even.
It's a weird contrast.
Speaker 1 (00:43):
So high supply, but also strong demand.
Speaker 2 (00:45):
Exactly and Freddie Mac, for instance.
They anticipate rents will grow, but modestly, about 2.2
percent in 2025.
Speaker 1 (00:53):
Which is lower than usual.
Speaker 2 (00:54):
Yeah, it's about 60 basis points, so 0.6 percent
below their historical average.
Got it.
And yeah, vacancy rates areexpected to tick up a bit to
about 6.2 percent.
Speaker 1 (01:03):
So if you're an investor looking at that, I mean
it sounds pretty challenging.
What's the main takeaway?
Speaker 2 (01:07):
Right, it does sound challenging, but the core
takeaway isn't really avoid thismarket.
It's more about mastering thesevery nuanced conditions,
precisely so you can thrivewhere maybe others stumble.
Speaker 1 (01:21):
So it requires more sophistication.
Speaker 2 (01:23):
Exactly it demands sophistication, not fear.
Speaker 1 (01:25):
And that's basically our mission for this deep dive
right.
We're going to try and distillmultifamily investment success
into eight critical factors.
Speaker 2 (01:33):
Yep Eight key areas.
Speaker 1 (01:37):
And this is all based on pretty comprehensive
research.
You know, freddie Mac, cbre JPMorgan plus various industry
insiders.
Solid sourcesBRE JP Morgan plusvarious industry insiders.
Speaker 2 (01:45):
Solid sources.
Speaker 1 (01:46):
Yeah, we're talking about the modern realities, the
things that really separatesuccessful investors from well,
from those who learn expensivelessons.
Speaker 2 (01:54):
Absolutely.
These are not yourgrandfather's real estate rules.
Things have changed.
Speaker 1 (01:58):
Definitely not Okay.
Let's jump right into our firstcritical factor market
fundamentals and timing.
Speaker 2 (02:04):
Let's do it.
Speaker 1 (02:05):
They always say real estate is all about location.
Right, but in today'smultifamily world, it feels like
timing is just as crucial,maybe even more so.
Why is that?
Speaker 2 (02:14):
It absolutely is.
You mentioned that supplytsunami earlier.
Well, the critical insight hereis that this surge it's
actually creating opportunity,it's not destroying it.
Speaker 1 (02:23):
Oh so.
Speaker 2 (02:24):
Well, look at the CBRE data.
By mid-2025, multifamilyconstruction starts.
They're projected to besomething like 74% below their
2021 peak 74% below.
Speaker 1 (02:36):
That's huge.
Speaker 2 (02:37):
It's a massive drop.
The construction pipeline isshrinking fast, so this current
surge is really a temporary peak.
Future supply is going to beconstrained.
Speaker 1 (02:46):
OK, so we're seeing this peak in new supply now, but
underlying demand is stillincredibly strong.
What's keeping demand so high?
Speaker 2 (02:55):
Well, a big part of it is that homeownership has
just become prohibitivelyexpensive for many.
The average mortgage payment isactually 45 percent higher than
typical apartment rents 35% wow.
Yeah, so renting is justsignificantly more affordable.
And here's a key thing whatsome call the rental trap Nearly
80% of current homeowners.
They have mortgage rates below5%.
Speaker 1 (03:17):
Right, the golden handcuffs.
Speaker 2 (03:18):
Exactly.
They're incredibly reluctant tosell and give up that rate, so
it essentially traps millions ofpeople in the rental market.
Speaker 1 (03:25):
Which for an investor means.
Speaker 2 (03:27):
It means you've got this enduring baseline of demand
.
The strategic play is to focuson strategies that capitalize on
stable occupancy, even withthis new supply heating now.
Speaker 1 (03:39):
And I assume this isn't the same everywhere.
These trends must vary a lot byregion.
Speaker 2 (03:43):
Oh, absolutely.
And understanding theseregional micro cycles.
That's what separates the prosfrom the amateurs really, for
example.
Well, Sunbelt markets, forinstance.
They're facing more oversupplyright now.
That means competitive pricing,maybe some concessions, ok.
But then you look at theMidwest and the Northeast
they're actually expecting rentgrowth of three percent or even
more in 2025.
Speaker 1 (04:03):
So totally different dynamics.
Speaker 2 (04:04):
Completely Knowing exactly where your specific
market is in that local cycle iscritical.
Speaker 1 (04:10):
That focus on the local level leads us perfectly
into factor hashtag two locationand sub-market analysis.
It's not just about what'sthere right now Location
analysis in 2025, it meansunderstanding the forces shaping
neighborhoods for, like, thenext decade.
What should investors really bezeroing?
Speaker 2 (04:30):
in on Precisely and post-COVID walkability isn't
just about getting to workanymore.
Speaker 1 (04:35):
Right, it's broader now.
Speaker 2 (04:36):
It's profoundly about lifestyle amenities, health
care, access, entertainment, howpeople actually live in that
neighborhood day to day.
Speaker 1 (04:44):
OK, and what else?
Speaker 2 (04:46):
Crime rates.
They're becoming reallyimportant leading indicators of
a neighborhood's trajectory upor down.
Speaker 1 (04:52):
Makes sense.
Speaker 2 (04:53):
And strong school districts.
They consistently signalcommunity stability, attracting
longer term tenants, oftenfamilies.
Speaker 1 (04:59):
Right.
Speaker 2 (04:59):
But here's a critical takeaway the real money.
Often it comes fromunderstanding future development
plans.
Speaker 1 (05:06):
Ah, looking ahead.
Speaker 2 (05:07):
Yeah, you absolutely need to dig into city planning
documents, zoning maps.
I knew an investor who scoredbig just by noticing a proposed
transit line extension yearsbefore it even broke ground.
Speaker 1 (05:17):
That's the kind of foresight needed.
Speaker 2 (05:19):
That's the level.
And one more thing Don'toverlook environmental concerns.
Speaker 1 (05:23):
How so.
Speaker 2 (05:23):
They've really shifted from just nice to know
to absolutely need to know.
Climate change isn't somedistant future problem.
It's impacting insurance costsright now.
You have to factor that in.
Speaker 1 (05:36):
Good point.
So, beyond the neighborhood, weneed to look really closely at
the property itself.
Specifically, factor hashtagthree financial performance.
Crucial, and this isn't just aquick glance at the numbers, is
it?
It demands what I call itforensic level rigor earlier.
Speaker 2 (05:53):
That's a good way to put it.
You absolutely need actualstatements, don't rely on
projections.
Speaker 1 (05:57):
So what specifically?
Speaker 2 (05:59):
Demand the trailing 12 months income and expense
statements, the T12, and get atleast three years of P&L profit
and loss statements.
Speaker 1 (06:07):
OK, T12 and three years P&L.
Why is that so important?
Speaker 2 (06:10):
It helps you spot the pitfalls.
Are expenses maybe artificiallylow because the current owner
deferred a bunch of maintenancethat you'll have to pay for?
Speaker 1 (06:17):
Right.
Speaker 2 (06:17):
Or are the rents inflated because of temporary
concessions that are going toburn off?
Speaker 1 (06:21):
Things that won't last.
Speaker 2 (06:22):
Exactly, and here's a really crucial point for
today's market cap rates.
You know cap rates.
You know the unleveraged returnmeasure.
They've kind of flattened out.
Speaker 1 (06:31):
What does that mean for investors?
Speaker 2 (06:33):
It means you have to dig much deeper to understand
what's truly driving returns.
Honestly, some of the bestdeals right now might have
mediocre cap rates on paper.
Speaker 1 (06:43):
Interesting why.
Speaker 2 (06:44):
Because they might have exceptional upside through
operational improvements.
The current owner missed, ormaybe neighborhood benefits that
just aren't reflected in thenumbers yet.
Speaker 1 (06:53):
Like finding hidden potential.
Speaker 2 (06:54):
Exactly.
Maybe it's a 5% cap rateproperty.
It looks kind of boring, but ifyou see a way to cut utility
costs by 20% with smart tech,your effective return jumps
significantly.
It's about finding that hiddenangle.
Speaker 1 (07:07):
And when we talk about digging deep, that applies
directly to factor hashtag forproperty condition and capital
needs.
Absolutely, this isn't just anice to have check, it's
actually a requirement for majorlenders like Fannie Mae,
freddie Mac, hud.
Speaker 2 (07:21):
That's correct, a formal property condition
assessment or PCA.
Speaker 1 (07:25):
So what does a comprehensive PCA really tell
you?
Speaker 2 (07:28):
Well, it examines everything critical HVAC systems
, plumbing, electrical, the roof, windows, structural elements,
the works.
Speaker 1 (07:37):
Okay.
Speaker 2 (07:38):
But the point isn't just finding current problems,
though that's important.
It's crucial for predictingfuture capital needs.
It's basically your roadmap forbig expenses coming down the
line.
Speaker 1 (07:49):
Like future repairs and replacements.
Speaker 2 (07:50):
Exactly.
A good rule of thumb people useis the 1% rule budget about 1%
of the property's value eachyear for maintenance.
Speaker 1 (07:59):
Okay, 1%.
Speaker 2 (08:00):
But you have to be cautious Older properties they
might easily need 2% or evenmore.
That 1% is just a startingpoint.
Speaker 1 (08:07):
Right depends on the property's aging condition.
Definitely.
Speaker 2 (08:10):
And the real danger here is deferred maintenance.
You see these cosmeticmakeovers sometimes.
Speaker 1 (08:14):
Yeah, fresh paint, new landscaping.
Speaker 2 (08:16):
Right, but they might be hiding serious structural
issues or major mechanicalproblems just waiting to fail.
Speaker 1 (08:22):
So look past the surface.
Speaker 2 (08:23):
Always the pro tip is assume the seller did the bare
minimum required to sell andmake sure you budget for the
unexpected things you'll uncoverlater.
Speaker 1 (08:31):
Good advice.
Ok, let's pivot now tosomething that feels like it's
becoming a much bigger deal forinvestors.
Factor hashtag five Regulatoryenvironment and rent control.
Speaker 2 (08:42):
Oh yeah, this is huge now.
Speaker 1 (08:44):
It's definitely not just a California problem
anymore, is it?
Speaker 2 (08:46):
No, not at all.
Look at Oregon.
They have statewide rent capsand that trend, well, it seems
to be spreading.
Speaker 1 (08:53):
So investors need to be aware.
Speaker 2 (08:54):
Absolutely.
It's crucial to understand notjust the rules today, but also
where the political winds areblowing, because laws can change
sometimes quickly.
Right, and it's not just aboutdirect rent control either.
You need to think about otherregulations.
Speaker 1 (09:09):
Like what.
Speaker 2 (09:10):
Zoning restrictions, for example, they might limit
your ability to do thosevalue-add improvements you
planned.
Okay, building codes couldforce expensive upgrades you
hadn't budgeted for, and tenantprotection laws in some places
can make it really difficult andcostly to remove problem
tenants.
Speaker 1 (09:25):
Lots to consider beyond just rent price caps.
Speaker 2 (09:28):
For sure the strategic insight here.
You almost need to think like apolitical scientist.
Speaker 1 (09:32):
Oh, ok, how so.
Speaker 2 (09:35):
Yeah, research pending legislation in your
target market.
Understand the local housingadvocacy groups and their
influence.
Factor potential regulatorychanges into your long-term
financial projections.
Speaker 1 (09:47):
So anticipate potential changes.
Speaker 2 (09:49):
Exactly Ignoring this , a deal that looks great on
paper could turn into a legaland financial nightmare down the
road.
Speaker 1 (09:56):
Very important.
Ok, on to factor hashtag sixproperty management strategy.
I've heard people say thedifference between great and
Well, mediocre propertymanagement can actually be
bigger than the differencebetween a great and mediocre
location.
How true is that in yourexperience?
Speaker 2 (10:13):
I'd say it's incredibly true, often
underestimated.
Why?
Because you're not just hiringa vendor to collect rent.
You're choosing a partner,someone who represents your
interests on the ground everysingle day.
They directly impact yourbottom line, your tenant
relations, your property'sreputation.
Speaker 1 (10:29):
So what should you look for in a good property
manager?
Speaker 2 (10:31):
Key qualities Strong local market expertise is
essential.
They need proven systems forthings like tenant screening,
rent collection, maintenance.
Speaker 1 (10:40):
Systems are key.
Speaker 2 (10:41):
Absolutely, and deep technology integration is
becoming non-negotiable.
Plus, you need impeccablefinancial transparency.
You have to trust theirreporting.
Speaker 1 (10:50):
What about cost?
What's typical?
Speaker 2 (10:52):
Management fees usually range, say, from 3% to
10% of the gross income Right,but you need to look at the
total cost.
What are their leasing fees?
Do they mark up maintenance andrepairs?
Get the full picture.
Speaker 1 (11:04):
Good point Look beyond the base percentage.
Speaker 2 (11:06):
Definitely, and that technology integration I
mentioned it's crucial today.
The base percentage, Definitely, and that technology
integration I mentioned it'scrucial today.
Speaker 1 (11:16):
Tenants now expect digital communication, online
rent payments easy ways tosubmit maintenance requests
online, so the manager needs tobe tech savvy.
Speaker 2 (11:20):
A modern property manager has to be ahead of that
curve, not playing catch up.
It impacts tenant satisfactionand retention hugely.
Speaker 1 (11:27):
Makes sense Moving to factor hashtag seven, unit mix
and tenant demographics.
Speaker 2 (11:32):
Right.
Speaker 1 (11:32):
This feels like it's not just about marketing the
property, but really aboutpositioning it correctly for
maximum profit right from thestart.
How does an investor get thisright?
Speaker 2 (11:41):
Well, your unit mix, the combination of studios, one
bedrooms, two bedrooms, etc.
It fundamentally determines whocan actually afford your
property.
Speaker 1 (11:50):
And therefore who your likely tenants will be.
Speaker 2 (11:52):
Exactly so.
For example, a building withmostly studios it tends to
attract younger professionalsoften means higher turnover, but
you can usually command premiumrents per square foot.
Speaker 1 (12:04):
Okay, versus larger units.
Speaker 2 (12:06):
Larger units like two or three bedrooms.
They tend to attract families.
They often stay longer, whichis great for stability, but they
might also be more pricesensitive Tradeoffs there,
always tradeoffs.
But here's a key strategicinsight, especially relevant
post-COVID the demand for homeoffice space.
Yeah, it isn't temporary.
Speaker 1 (12:28):
It seems fundamental now, people still working from
home.
Speaker 2 (12:29):
A lot of people are or have hybrid setups, so units
that can comfortably accommodateremote work.
They can command premium rentsand they tend to attract quality
tenants who really understandand value that feature.
That can lead to higheroccupancy and better tenant
retention.
Overall, it's a real valueproposition now.
Speaker 1 (12:47):
Interesting.
Okay, finally, we arrive atfactor hashtag eight exit
strategy and hold period.
Speaker 2 (12:52):
The end game.
Speaker 1 (12:54):
Right.
Professional investors, theysay think about their exit
before they even make theentrance.
Yeah, how does that actuallyinfluence decisions from day one
?
Speaker 2 (13:02):
It's absolutely foundational, or at least it
should be.
Speaker 1 (13:05):
Why.
Speaker 2 (13:05):
Because the market operates in cycles.
We talked about that earlier.
Understanding where you are inthe current cycle and making an
educated guess about where themarket might be when you plan to
exit that's crucial formaximizing your returns.
You're planning years aheadfocusing on stable cash flow
(13:32):
over a long period, maybedecades, versus a value-add plan
where the goal is usually tofix it up, stabilize the
operations, increase the incomeand then sell it within, say,
three to seven years to capturethat appreciation.
Speaker 1 (13:40):
Two very different approaches.
Speaker 2 (13:41):
Very different, and a key takeaway here is taxes.
Tax implications significantlyimpact your net returns.
How so Well.
Selling triggers, capital gainstax and you also have
depreciation recapture, whichcan be a surprise if you're not
ready for it, okay.
On the other hand, using a 1031exchange can defer those taxes,
letting you roll profits into anew property, but those require
(14:04):
really meticulous planning andadherence to strict timelines.
Speaker 1 (14:08):
So the exit plan impacts everything.
Speaker 2 (14:10):
It really should.
Your chosen exit strategy oughtto influence your initial
purchase price, your renovationbudget, even the kind of tenants
you're trying to attract.
It connects everything.
Speaker 1 (14:20):
So there we have it Eight critical factors.
It feels like investors whoreally get these and understand
how they all interact.
They'll just be much betterpositioned, won't they?
Speaker 2 (14:30):
Definitely They'll be better positioned for whatever
the market throws their way,because the market isn't getting
any easier.
Speaker 1 (14:35):
No.
Speaker 2 (14:36):
No, I'd say it's getting more sophisticated.
Success today really requiresthe rigor of like a business
analyst, combined with thecuriosity of a researcher and
definitely the patience of along-term wealth builder.
Speaker 1 (14:49):
That's a great way to put it.
The opportunity in multifamilyit's absolutely real, but the
risks are too.
Speaker 2 (14:55):
For sure.
Speaker 1 (14:55):
And it sounds like success ultimately comes down to
that preparation, the sharpanalysis and then just flawless
execution.
Speaker 2 (15:03):
That sums it up well, and you know, while these eight
factors give you a reallyrobust framework for making
better decisions, yeah.
Remember, success still takeshard work, it takes good
judgment and, yeah, sometimes alittle bit of luck doesn't hurt
either.
Speaker 1 (15:17):
Always helps, yeah, but for those willing to do the
work, to really think deeplyabout these factors, multifamily
real estate still seems likeone of the most attractive paths
to building wealth.
Speaker 2 (15:27):
I believe it is.
Speaker 1 (15:28):
The key, though, is approaching it with the respect
and the sophistication it reallydeserves now.
Speaker 2 (15:34):
Couldn't agree more.
Speaker 1 (15:35):
So the final thought for you listening, how will you
leverage these insights?
How will you identify theopportunities and really
differentiate your strategy inthis evolving landscape?
Welcome to the Deep Dive, where we cut through the
noise and get straight to theinsights.
Speaker 2 (00:04):
Ah, to be here.
Speaker 1 (00:05):
So today we're dining into multifamily real estate
investing.
It's a world that seems to bein constant flux.
Speaker 2 (00:12):
It really does.
Speaker 1 (00:13):
From your perspective , what are the biggest, maybe
even unprecedented, shiftshappening right now?
Supply-demand what's thepicture?
Speaker 2 (00:21):
Well, the headline grabber is definitely the supply
side, no question.
Speaker 1 (00:26):
Okay.
Speaker 2 (00:27):
We're actually seeing the highest influx of new
apartments hitting the marketsince well since the 1980s.
Speaker 1 (00:32):
Wow, since the 80s.
Speaker 2 (00:33):
Yeah, it's a real supply tsunami, if you will,
Okay.
Yet what's really striking isthat tenant demand.
It remains incredibly robust,resilient even.
It's a weird contrast.
Speaker 1 (00:43):
So high supply, but also strong demand.
Speaker 2 (00:45):
Exactly and Freddie Mac, for instance.
They anticipate rents will grow, but modestly, about 2.2
percent in 2025.
Speaker 1 (00:53):
Which is lower than usual.
Speaker 2 (00:54):
Yeah, it's about 60 basis points, so 0.6 percent
below their historical average.
Got it.
And yeah, vacancy rates areexpected to tick up a bit to
about 6.2 percent.
Speaker 1 (01:03):
So if you're an investor looking at that, I mean
it sounds pretty challenging.
What's the main takeaway?
Speaker 2 (01:07):
Right, it does sound challenging, but the core
takeaway isn't really avoid thismarket.
It's more about mastering thesevery nuanced conditions,
precisely so you can thrivewhere maybe others stumble.
Speaker 1 (01:21):
So it requires more sophistication.
Speaker 2 (01:23):
Exactly it demands sophistication, not fear.
Speaker 1 (01:25):
And that's basically our mission for this deep dive
right.
We're going to try and distillmultifamily investment success
into eight critical factors.
Speaker 2 (01:33):
Yep Eight key areas.
Speaker 1 (01:37):
And this is all based on pretty comprehensive
research.
You know, freddie Mac, cbre JPMorgan plus various industry
insiders.
Solid sourcesBRE JP Morgan plusvarious industry insiders.
Speaker 2 (01:45):
Solid sources.
Speaker 1 (01:46):
Yeah, we're talking about the modern realities, the
things that really separatesuccessful investors from well,
from those who learn expensivelessons.
Speaker 2 (01:54):
Absolutely.
These are not yourgrandfather's real estate rules.
Things have changed.
Speaker 1 (01:58):
Definitely not Okay.
Let's jump right into our firstcritical factor market
fundamentals and timing.
Speaker 2 (02:04):
Let's do it.
Speaker 1 (02:05):
They always say real estate is all about location.
Right, but in today'smultifamily world, it feels like
timing is just as crucial,maybe even more so.
Why is that?
Speaker 2 (02:14):
It absolutely is.
You mentioned that supplytsunami earlier.
Well, the critical insight hereis that this surge it's
actually creating opportunity,it's not destroying it.
Speaker 1 (02:23):
Oh so.
Speaker 2 (02:24):
Well, look at the CBRE data.
By mid-2025, multifamilyconstruction starts.
They're projected to besomething like 74% below their
2021 peak 74% below.
Speaker 1 (02:36):
That's huge.
Speaker 2 (02:37):
It's a massive drop.
The construction pipeline isshrinking fast, so this current
surge is really a temporary peak.
Future supply is going to beconstrained.
Speaker 1 (02:46):
OK, so we're seeing this peak in new supply now, but
underlying demand is stillincredibly strong.
What's keeping demand so high?
Speaker 2 (02:55):
Well, a big part of it is that homeownership has
just become prohibitivelyexpensive for many.
The average mortgage payment isactually 45 percent higher than
typical apartment rents 35% wow.
Yeah, so renting is justsignificantly more affordable.
And here's a key thing whatsome call the rental trap Nearly
80% of current homeowners.
They have mortgage rates below5%.
Speaker 1 (03:17):
Right, the golden handcuffs.
Speaker 2 (03:18):
Exactly.
They're incredibly reluctant tosell and give up that rate, so
it essentially traps millions ofpeople in the rental market.
Speaker 1 (03:25):
Which for an investor means.
Speaker 2 (03:27):
It means you've got this enduring baseline of demand
.
The strategic play is to focuson strategies that capitalize on
stable occupancy, even withthis new supply heating now.
Speaker 1 (03:39):
And I assume this isn't the same everywhere.
These trends must vary a lot byregion.
Speaker 2 (03:43):
Oh, absolutely.
And understanding theseregional micro cycles.
That's what separates the prosfrom the amateurs really, for
example.
Well, Sunbelt markets, forinstance.
They're facing more oversupplyright now.
That means competitive pricing,maybe some concessions, ok.
But then you look at theMidwest and the Northeast
they're actually expecting rentgrowth of three percent or even
more in 2025.
Speaker 1 (04:03):
So totally different dynamics.
Speaker 2 (04:04):
Completely Knowing exactly where your specific
market is in that local cycle iscritical.
Speaker 1 (04:10):
That focus on the local level leads us perfectly
into factor hashtag two locationand sub-market analysis.
It's not just about what'sthere right now Location
analysis in 2025, it meansunderstanding the forces shaping
neighborhoods for, like, thenext decade.
What should investors really bezeroing?
Speaker 2 (04:30):
in on Precisely and post-COVID walkability isn't
just about getting to workanymore.
Speaker 1 (04:35):
Right, it's broader now.
Speaker 2 (04:36):
It's profoundly about lifestyle amenities, health
care, access, entertainment, howpeople actually live in that
neighborhood day to day.
Speaker 1 (04:44):
OK, and what else?
Speaker 2 (04:46):
Crime rates.
They're becoming reallyimportant leading indicators of
a neighborhood's trajectory upor down.
Speaker 1 (04:52):
Makes sense.
Speaker 2 (04:53):
And strong school districts.
They consistently signalcommunity stability, attracting
longer term tenants, oftenfamilies.
Speaker 1 (04:59):
Right.
Speaker 2 (04:59):
But here's a critical takeaway the real money.
Often it comes fromunderstanding future development
plans.
Speaker 1 (05:06):
Ah, looking ahead.
Speaker 2 (05:07):
Yeah, you absolutely need to dig into city planning
documents, zoning maps.
I knew an investor who scoredbig just by noticing a proposed
transit line extension yearsbefore it even broke ground.
Speaker 1 (05:17):
That's the kind of foresight needed.
Speaker 2 (05:19):
That's the level.
And one more thing Don'toverlook environmental concerns.
Speaker 1 (05:23):
How so.
Speaker 2 (05:23):
They've really shifted from just nice to know
to absolutely need to know.
Climate change isn't somedistant future problem.
It's impacting insurance costsright now.
You have to factor that in.
Speaker 1 (05:36):
Good point.
So, beyond the neighborhood, weneed to look really closely at
the property itself.
Specifically, factor hashtagthree financial performance.
Crucial, and this isn't just aquick glance at the numbers, is
it?
It demands what I call itforensic level rigor earlier.
Speaker 2 (05:53):
That's a good way to put it.
You absolutely need actualstatements, don't rely on
projections.
Speaker 1 (05:57):
So what specifically?
Speaker 2 (05:59):
Demand the trailing 12 months income and expense
statements, the T12, and get atleast three years of P&L profit
and loss statements.
Speaker 1 (06:07):
OK, T12 and three years P&L.
Why is that so important?
Speaker 2 (06:10):
It helps you spot the pitfalls.
Are expenses maybe artificiallylow because the current owner
deferred a bunch of maintenancethat you'll have to pay for?
Speaker 1 (06:17):
Right.
Speaker 2 (06:17):
Or are the rents inflated because of temporary
concessions that are going toburn off?
Speaker 1 (06:21):
Things that won't last.
Speaker 2 (06:22):
Exactly, and here's a really crucial point for
today's market cap rates.
You know cap rates.
You know the unleveraged returnmeasure.
They've kind of flattened out.
Speaker 1 (06:31):
What does that mean for investors?
Speaker 2 (06:33):
It means you have to dig much deeper to understand
what's truly driving returns.
Honestly, some of the bestdeals right now might have
mediocre cap rates on paper.
Speaker 1 (06:43):
Interesting why.
Speaker 2 (06:44):
Because they might have exceptional upside through
operational improvements.
The current owner missed, ormaybe neighborhood benefits that
just aren't reflected in thenumbers yet.
Speaker 1 (06:53):
Like finding hidden potential.
Speaker 2 (06:54):
Exactly.
Maybe it's a 5% cap rateproperty.
It looks kind of boring, but ifyou see a way to cut utility
costs by 20% with smart tech,your effective return jumps
significantly.
It's about finding that hiddenangle.
Speaker 1 (07:07):
And when we talk about digging deep, that applies
directly to factor hashtag forproperty condition and capital
needs.
Absolutely, this isn't just anice to have check, it's
actually a requirement for majorlenders like Fannie Mae,
freddie Mac, hud.
Speaker 2 (07:21):
That's correct, a formal property condition
assessment or PCA.
Speaker 1 (07:25):
So what does a comprehensive PCA really tell
you?
Speaker 2 (07:28):
Well, it examines everything critical HVAC systems
, plumbing, electrical, the roof, windows, structural elements,
the works.
Speaker 1 (07:37):
Okay.
Speaker 2 (07:38):
But the point isn't just finding current problems,
though that's important.
It's crucial for predictingfuture capital needs.
It's basically your roadmap forbig expenses coming down the
line.
Speaker 1 (07:49):
Like future repairs and replacements.
Speaker 2 (07:50):
Exactly.
A good rule of thumb people useis the 1% rule budget about 1%
of the property's value eachyear for maintenance.
Speaker 1 (07:59):
Okay, 1%.
Speaker 2 (08:00):
But you have to be cautious Older properties they
might easily need 2% or evenmore.
That 1% is just a startingpoint.
Speaker 1 (08:07):
Right depends on the property's aging condition.
Definitely.
Speaker 2 (08:10):
And the real danger here is deferred maintenance.
You see these cosmeticmakeovers sometimes.
Speaker 1 (08:14):
Yeah, fresh paint, new landscaping.
Speaker 2 (08:16):
Right, but they might be hiding serious structural
issues or major mechanicalproblems just waiting to fail.
Speaker 1 (08:22):
So look past the surface.
Speaker 2 (08:23):
Always the pro tip is assume the seller did the bare
minimum required to sell andmake sure you budget for the
unexpected things you'll uncoverlater.
Speaker 1 (08:31):
Good advice.
Ok, let's pivot now tosomething that feels like it's
becoming a much bigger deal forinvestors.
Factor hashtag five Regulatoryenvironment and rent control.
Speaker 2 (08:42):
Oh yeah, this is huge now.
Speaker 1 (08:44):
It's definitely not just a California problem
anymore, is it?
Speaker 2 (08:46):
No, not at all.
Look at Oregon.
They have statewide rent capsand that trend, well, it seems
to be spreading.
Speaker 1 (08:53):
So investors need to be aware.
Speaker 2 (08:54):
Absolutely.
It's crucial to understand notjust the rules today, but also
where the political winds areblowing, because laws can change
sometimes quickly.
Right, and it's not just aboutdirect rent control either.
You need to think about otherregulations.
Speaker 1 (09:09):
Like what.
Speaker 2 (09:10):
Zoning restrictions, for example, they might limit
your ability to do thosevalue-add improvements you
planned.
Okay, building codes couldforce expensive upgrades you
hadn't budgeted for, and tenantprotection laws in some places
can make it really difficult andcostly to remove problem
tenants.
Speaker 1 (09:25):
Lots to consider beyond just rent price caps.
Speaker 2 (09:28):
For sure the strategic insight here.
You almost need to think like apolitical scientist.
Speaker 1 (09:32):
Oh, ok, how so.
Speaker 2 (09:35):
Yeah, research pending legislation in your
target market.
Understand the local housingadvocacy groups and their
influence.
Factor potential regulatorychanges into your long-term
financial projections.
Speaker 1 (09:47):
So anticipate potential changes.
Speaker 2 (09:49):
Exactly Ignoring this , a deal that looks great on
paper could turn into a legaland financial nightmare down the
road.
Speaker 1 (09:56):
Very important.
Ok, on to factor hashtag sixproperty management strategy.
I've heard people say thedifference between great and
Well, mediocre propertymanagement can actually be
bigger than the differencebetween a great and mediocre
location.
How true is that in yourexperience?
Speaker 2 (10:13):
I'd say it's incredibly true, often
underestimated.
Why?
Because you're not just hiringa vendor to collect rent.
You're choosing a partner,someone who represents your
interests on the ground everysingle day.
They directly impact yourbottom line, your tenant
relations, your property'sreputation.
Speaker 1 (10:29):
So what should you look for in a good property
manager?
Speaker 2 (10:31):
Key qualities Strong local market expertise is
essential.
They need proven systems forthings like tenant screening,
rent collection, maintenance.
Speaker 1 (10:40):
Systems are key.
Speaker 2 (10:41):
Absolutely, and deep technology integration is
becoming non-negotiable.
Plus, you need impeccablefinancial transparency.
You have to trust theirreporting.
Speaker 1 (10:50):
What about cost?
What's typical?
Speaker 2 (10:52):
Management fees usually range, say, from 3% to
10% of the gross income Right,but you need to look at the
total cost.
What are their leasing fees?
Do they mark up maintenance andrepairs?
Get the full picture.
Speaker 1 (11:04):
Good point Look beyond the base percentage.
Speaker 2 (11:06):
Definitely, and that technology integration I
mentioned it's crucial today.
The base percentage, Definitely, and that technology
integration I mentioned it'scrucial today.
Speaker 1 (11:16):
Tenants now expect digital communication, online
rent payments easy ways tosubmit maintenance requests
online, so the manager needs tobe tech savvy.
Speaker 2 (11:20):
A modern property manager has to be ahead of that
curve, not playing catch up.
It impacts tenant satisfactionand retention hugely.
Speaker 1 (11:27):
Makes sense Moving to factor hashtag seven, unit mix
and tenant demographics.
Speaker 2 (11:32):
Right.
Speaker 1 (11:32):
This feels like it's not just about marketing the
property, but really aboutpositioning it correctly for
maximum profit right from thestart.
How does an investor get thisright?
Speaker 2 (11:41):
Well, your unit mix, the combination of studios, one
bedrooms, two bedrooms, etc.
It fundamentally determines whocan actually afford your
property.
Speaker 1 (11:50):
And therefore who your likely tenants will be.
Speaker 2 (11:52):
Exactly so.
For example, a building withmostly studios it tends to
attract younger professionalsoften means higher turnover, but
you can usually command premiumrents per square foot.
Speaker 1 (12:04):
Okay, versus larger units.
Speaker 2 (12:06):
Larger units like two or three bedrooms.
They tend to attract families.
They often stay longer, whichis great for stability, but they
might also be more pricesensitive Tradeoffs there,
always tradeoffs.
But here's a key strategicinsight, especially relevant
post-COVID the demand for homeoffice space.
Yeah, it isn't temporary.
Speaker 1 (12:28):
It seems fundamental now, people still working from
home.
Speaker 2 (12:29):
A lot of people are or have hybrid setups, so units
that can comfortably accommodateremote work.
They can command premium rentsand they tend to attract quality
tenants who really understandand value that feature.
That can lead to higheroccupancy and better tenant
retention.
Overall, it's a real valueproposition now.
Speaker 1 (12:47):
Interesting.
Okay, finally, we arrive atfactor hashtag eight exit
strategy and hold period.
Speaker 2 (12:52):
The end game.
Speaker 1 (12:54):
Right.
Professional investors, theysay think about their exit
before they even make theentrance.
Yeah, how does that actuallyinfluence decisions from day one
?
Speaker 2 (13:02):
It's absolutely foundational, or at least it
should be.
Speaker 1 (13:05):
Why.
Speaker 2 (13:05):
Because the market operates in cycles.
We talked about that earlier.
Understanding where you are inthe current cycle and making an
educated guess about where themarket might be when you plan to
exit that's crucial formaximizing your returns.
You're planning years aheadfocusing on stable cash flow
(13:32):
over a long period, maybedecades, versus a value-add plan
where the goal is usually tofix it up, stabilize the
operations, increase the incomeand then sell it within, say,
three to seven years to capturethat appreciation.
Speaker 1 (13:40):
Two very different approaches.
Speaker 2 (13:41):
Very different, and a key takeaway here is taxes.
Tax implications significantlyimpact your net returns.
How so Well.
Selling triggers, capital gainstax and you also have
depreciation recapture, whichcan be a surprise if you're not
ready for it, okay.
On the other hand, using a 1031exchange can defer those taxes,
letting you roll profits into anew property, but those require
(14:04):
really meticulous planning andadherence to strict timelines.
Speaker 1 (14:08):
So the exit plan impacts everything.
Speaker 2 (14:10):
It really should.
Your chosen exit strategy oughtto influence your initial
purchase price, your renovationbudget, even the kind of tenants
you're trying to attract.
It connects everything.
Speaker 1 (14:20):
So there we have it Eight critical factors.
It feels like investors whoreally get these and understand
how they all interact.
They'll just be much betterpositioned, won't they?
Speaker 2 (14:30):
Definitely They'll be better positioned for whatever
the market throws their way,because the market isn't getting
any easier.
Speaker 1 (14:35):
No.
Speaker 2 (14:36):
No, I'd say it's getting more sophisticated.
Success today really requiresthe rigor of like a business
analyst, combined with thecuriosity of a researcher and
definitely the patience of along-term wealth builder.
Speaker 1 (14:49):
That's a great way to put it.
The opportunity in multifamilyit's absolutely real, but the
risks are too.
Speaker 2 (14:55):
For sure.
Speaker 1 (14:55):
And it sounds like success ultimately comes down to
that preparation, the sharpanalysis and then just flawless
execution.
Speaker 2 (15:03):
That sums it up well, and you know, while these eight
factors give you a reallyrobust framework for making
better decisions, yeah.
Remember, success still takeshard work, it takes good
judgment and, yeah, sometimes alittle bit of luck doesn't hurt
either.
Speaker 1 (15:17):
Always helps, yeah, but for those willing to do the
work, to really think deeplyabout these factors, multifamily
real estate still seems likeone of the most attractive paths
to building wealth.
Speaker 2 (15:27):
I believe it is.
Speaker 1 (15:28):
The key, though, is approaching it with the respect
and the sophistication it reallydeserves now.
Speaker 2 (15:34):
Couldn't agree more.
Speaker 1 (15:35):
So the final thought for you listening, how will you
leverage these insights?
How will you identify theopportunities and really
differentiate your strategy inthis evolving landscape?
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