Preparing for 2023: How Rising Interest Rates Affect Multifamily Real Estate

While murmurings of an impending recession are gathering strength – a survey of economists done by the Wall Street Journal indicates a likelihood of 63% – there has yet to be an official announcement from the National Bureau of Economic Research (NBER) that we are indeed bound for a full blown recession. 

While many wait on baited breath for what the next year may hold for investors, there are some silver linings to be found. In particular, multifamily real estate’s solid track record through economic hardship.

If you are curious about investing in a real estate syndication, but weary of the rocky economic road ahead, this article dives into the potential a multifamily investment has to help you make it through in good standing.


Are Dark Days Ahead?

Both inflation and a weakening economy are at the root of the nation’s current predicament – also known as stagflation. These two factors make people understandably cynical about the prospect of investing in the stock market and real estate. 

However, while the mention of a recession is apt to make any young investor’s skin crawl, there are some important points to keep in mind.

  • With fewer people qualifying for mortgages, the rental market will be hotter.
  • Rising interest rates reduce housing prices.
  • While traditional investments follow the market up or down, multifamily investments tend to hold strong.

Additionally, there are some potential roadblocks to keep in mind.

  • Rising interest rates have the potential to increase borrowing costs that affect the bottom line for investors.
  • Construction costs increase, which makes new multifamily housing projects more expensive to pull off. 

While the year ahead may not be butterflies and rainbows for the U.S. economy, there are still opportunities for real estate investors to find stability through multifamily real estate. 

Comparing the pros and cons of multifamily housing investments in a recession, the demand for multifamily housing solutions gives this option more stability than other forms of investing during economic strife. This demand offsets some of the burden felt by investors due to increasing interest rates. 


Implications from the Last Recession

While some 15 years have gone by since the height of The Great Recession, the lessons learned during that time had a lasting impact on investors wanting to avoid the potential hardships of a future recession. 

One fact that remained true through the previous economic downturn, and remains true today, is that there is a constant need for affordable housing. Multifamily solutions offer a safer option for those who will continue – or return – to rent in the face of economic uncertainty. This is equally enticing for investors, as it assures instant and continuous cash flow.

The connection between rising inflation and the subsequent need for rentals makes a volatile economic environment favorable for multifamily solutions. 


Is Multifamily Real Estate “Recession-Resistant”?

Ultimately, there is a direct correlation between the decrease in access to affordable single family homes and the demand for multifamily housing options. As families navigate an uncertain economic future, having access to affordable rental options is essential.

As would-be homebuyers struggle to justify entering the ranks of homeownership, multifamily housing options standout as a safe option for renters and investors alike. This reality makes multifamily real estate a more “recession-resistant” option than some more traditional investments.  


What Factors Make Multifamily Real Estate Look Good in 2023?

  • Low supply and high demand – With droves of Millenial and Gen Z renters snatching up affordable multifamily units, there is a heightened demand for these types of properties. This demand bodes very well for multifamily investors as we enter 2023. In 2021, the National Apartment Association placed the US occupancy rate at 96.5%, breaking previously held records. With an uncertain economic future, these rates won’t be going down any time soon.
  • Rising rent rates – With a sharp increase in demand – and the subsequent declining supply – rent climbed as much as 10% in many large US cities. And hot spots, like Phoenix, saw even bigger increases (15.7%).
  • Increasing interest rates – This is a bit of a double edged sword because, while the rising interest rates are turning people off from buying single family homes and leading them into the multifamily rental market, they also impact the bottom line for multifamily investors.
  • Find ease through a real estate syndication – Even with all the perks that come along with investing in a multifamily property, there is still the headache of having to pull a project off. If you want to get in on the action without having to deal with the hassle, investing in a multifamily syndication is the place to start. 


Want to Learn More About Investing in a Multifamily Real Estate Syndication?

If you would like to discuss opportunities to invest with a multifamily real estate syndication in 2023, get in touch with us today! 


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