Magazine article Mortgage Banking

Lending Strategies to Meet the Growing Needs of Multifamily Investment

Magazine article Mortgage Banking

Lending Strategies to Meet the Growing Needs of Multifamily Investment

Article excerpt

The face of today's individual multifamily investor is changing, and with it, how these investment properties are financed. Investors that entered the residential real estate market with one-to-four-unit properties are becoming more sophisticated, seeking ownership of larger multifamily properties. Financing can become an issue. For residential mortgage lenders that want to form new or deeper relationships with these customers, there is an innovative product that can help these investors move to the next level of five-plus-unit multifamily ownership.

Multifamily properties becoming hot commodities

Multifamily rental housing (apartment buildings, condominiums and single-family homes) has long been considered a profitable option for individual investors looking for income-producing real estate. Historically, such investments have provided competitive returns compared with other property types such as office, retail and industrial, according to the National Multi Housing Council (NMHC), Washington, D.C. Recently, however, several factors have combined to fuel interest in multifamily investments like never before--including historically low borrowing rates, shifting demographic trends and a robust employment environment.

"The echo boomers are coming, and it's a certainty that most of them will be renting," states The Implications of Changing Demographics for Multifamily Investors, a paper published by the Institute for Fiduciary Education (IFE). Echo boomers, born between 1977 and 1995--the children of the baby-boomer generation--are nearly 80 million strong and poised to have a huge impact on the nation's economy. Moreover, some 25 percent of baby-boomer parents own more than one property, 58 percent of which is rental property, according to a new survey conducted for the National Association of Realtors[R] (NAR), Chicago.

As the echo-boomer generation enters the prime renting age of 20 to 34 years old, IFE predicts a strong increase in the demand for rental housing. Emerging Trends in Real Estate[R] 2006, a report by the Washington, D.C.-based Urban Land Institute (ULI) and New York-based PricewaterhouseCoopers LLP, concurs, saying that multifamily properties will lead other housing sectors in 2006 as renters enter the market in greater numbers, "creating a full-blown landlord's market."

In addition, the nation's 4.6 percent unemployment rate is the lowest since July 2001--a related trend that is contributing to the increased demand for rental housing. "Young adults can increasingly afford to move out of their parents' homes and into rental units," reported New York-based Standard & Poor's in its First Quarter 2006 CMBS Highlights.

Finally, multifamily housing vacancy rates are expected to drop to 5.2 percent by the end of the year, with the average rent predicted to rise 2.7 percent in 2006, according to the National Association of Realtors.

Mortgage bankers can help investors capitalize on growing multifamily market

For many residential mortgage lenders, a reliable portion of their customer base consists of entry-level real estate investors. They've helped these customers finance their first investment properties, such as single-family homes, duplexes and quadplexes.

At some point, however, confidence, circumstances or market opportunities will motivate these customers to move to the next level of residential real estate investment (properties with five or more units). …

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