Are Multifamily Properties Recession Proof? Part 2


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Are Multifamily Properties Recession Proof?

Multifamily properties in Edmonton hold an advantage over commercial real estate because they enable the investor to more easily maneuver cash flow. Long term leases like those you find in office buildings do not allow for the frequent rent adjustments that are possible with multifamily investments. The reason for this is that leases on apartments are usually 6 to 12 months long rather than several years as with commercial.

Additionally, apartment buildings have a much greater potential for density compared to commercial buildings due to there being more individuals and shorter-term leases. This provides investors with the flexibility to adjust to changing markets.

One of the biggest advantages of multi-family investments is that we can quickly and dramatically increase the value of an acquisition by increasing its net operating income through sound management principles. By transforming a poorly managed property into a well-run property, investors can quickly realize the benefits of refinancing, and reinvesting that equity into other multifamily investments.

Let’s take a look at some stats from Cushman and Wakefield that will help us to predict what 2016 will hold for the Edmonton rental market.

2014

Vacancy (%) 1.7
Average Rents ($) 1,103
Sales Volume ($) 356M
Sales (Units Sold) 2,281
Cap Rate (%) 6.0

2015

Vacancy (%) 4.2
Average Rents ($) 1,137
Sales Volume ($) 413M
Sales (Units Sold) 2,624
Cap Rate (%) 5.9

What this information tells us is that although the vacancy rates did increase last year, so did the overall sales volume, as well as the price of rent. This has had something of a balancing effect when it comes to the pocketbooks of multifamily property investors. Although most experts are predicting some minor increases in vacancy during 2016, investors can mitigate this through a number of tactics, such as making improvements to their property that will appeal to renters.

The fact of the matter is that the demand for residential housing will always exist whether the market is going up or down because people will always need a place to live. That in and of itself gives multifamily an advantage over other types of real estate investments. 

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