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Invest During Inflation!: How Investing in Commercial Multifamily Real Estate Protects You Against Inflation

We all know you should invest during inflation if you can manage your exposure to risk. I know it, you know it and Warren Buffet knows it. You don’t want your money to sit around doing nothing while it continues to lose value during an inflationary period. As Buffet points out in the article, real estate is a good investment during an inflationary period. I agree and would like to talk specifically about commercial multifamily real estate investment as I believe it is one of the most resilient ventures (in real estate or otherwise) when it comes to withstanding inflation effects. Whether small or large scale, the lease terms of commercial multifamily real estate investment are highly reliable business lifelines. While the agreement assures the tenants of an undisrupted stay in the property, it guarantees the investor of continuous returns on investment, irrespective of the economic conditions.

In the recent Covid19 period, most industries were barely pushing through, as the markets hit record lows. Investment property multifamily real estates were among the few investments that remained relatively strong against the diminishing market forces. Despite an initial dip, the market had a rapid recovery compared to most commercial industries.

Benefits of Apartment Investing During Inflation

Housing prices tend to increase during inflationary periods which in turn protects landlords against inflation. In addition, it increases the demand for rental homes due to reduced purchasing power. Let’s look at the various benefits of apartment investing when you invest during periods of inflation.
If you want to know more about apartment investments check out this page on multifamily investment which includes our top 9 reasons we think commercial multifamily are a great investment.

Reasons to consider multifamily when you invest during inflation:

1) Favorable lease terms

The lease agreements for commercial real estate investment have clauses that allow increasing the rents at constant intervals throughout the lease period. The agreement, for instance, could have a clause that requires a 2% increase in rental rates after each year. The return from the investment is bound to remain positive, as long as the rent increase rates are above the inflation rate.
Since the lease periods of commercial multifamily investments are generally shorter than most other commercial real estate, landlords can conveniently increase the rent quicker. This short lease period allows investors to take advantage of inflation, increasing the rent with every tenant lease period renewal.

2) Single-family home prices increase with rise of inflation

Single-family home prices tend to rise in an inflationary economy. Such increases make it hard for most willing buyers to move out and buy their own homes, increasing the demand for multifamily residents. Interest rates also increase due to inflation, further straining most people’s capacity to acquire new homes. The reduced purchasing capacity for most potential home buyers pushes them to depend on rental homes fully, which favors landlords.

3) Increasing rental charges in the wake of inflation

Inflation is characterized by hiking commodity prices, including an increase in rent for commercial multifamily investments. As the commercial multifamily investments rental rates increase, the operational and maintenance costs remain considerably constant.
The increase in rental rates contributes to a positive net operating income, which appreciates the property value. Your commercial real estate investment will not be affected by inflation as long as the inflation rates do not exceed the property values. An increase in rental rates is one of the most notable apartments investing during inflation benefits.

4) Guaranteed cashflow

Another one of the most attractive apartments investing during inflation benefits is the guaranteed cash flow. Whether the economy grows or shrinks, people need a place to stay. They may be unable to purchase their own homes, so they have to rent a one. This necessity makes investing in commercial real estate worthwhile, as rent has to be paid.

invest during inflation. commercial multifamily investments by mi-ella.

Commercial multifamily tips for when you invest during inflation

Venturing in investment property multi family is not always a straight forward endeavor. There are a number of ways you can use to maximize your returns, and minimize drawbacks when running the property. Here are some commercial multifamily investments tips to guide you towards your investment’s goals.

Increase the tenants’ share of operating costs

As inflation continues to assert its effects on the economy, the operating expenses increase. Such expenses include:
Insurance
Taxes
Utilities
Building maintenance costs

Tenants share these expenses in their rental payments in pro-rata arrangements depending on how much square footage one occupies. As operation costs rise, landlords also increase the tenants’ share of the operational expenses to stay above the inflation curve.
You should ensure the tenants know these possible increase in rates by clearly detailing them with an escalation clause in the lease agreement.

Don’t forget the lease rent escalation clause

A rent escalation clause is a great way to protect your investment against inflation, as it helps cover the increasing maintenance costs. It is, therefore, crucial to for you profit from your lease agreement. You can adopt either a fixed percentage or a consumer price index escalation method.
The rent increase is tied directly to the inflation rate for the consumer price index escalation method, making it the most viable escalation technique for multifamily property investors.

Invest during low interest rate periods (alt: invest during inflation but ideally before interest rates rise)

Commercial multifamily real estate investment can safeguard your money by taking advantage of low-interest rates for fixed mortgage rates. On selling or renting the property, the appreciating consumer cost will be on the shoulders of the buyer or tenant. As the landlord, you’ll reap the benefits of the higher rates and hedge against inflation. The business in real estate investment, therefore requires some bold purchase decisions when the rates are favorable and likely to rise to reap the returns.
In addition, when you purchase investment property multi family real estate, the property’s value is constantly on the rise and is bound to fetch higher market prices with time.

Calculate your actual return before venturing into a property

When venturing into commercial multifamily real estate investment, it is crucial to determine the gross profit you’ll reap from the investment after deducting maintenance and inflation costs. These calculations will help determine whether investing in potential high-risk inflation areas is worth it.
Involving a commercial multifamily investment companies could help develop a risk-adjusted estimate. Professional agents can identify low-risk regions since they have a better view and understanding of the market. They can therefore offer their expertise in determining actual returns based on the inflation rates and possibilities of an area.

Work with multifamily investment companies

As mentioned earlier, to succeed in your commercial multifamily real estate investment, you need to work with a competitive team of professionals. They’ll guide you on the do’s and don’ts of the industry. Working with a multifamily investment companies helps you manage the operational duties of the property and takes the load off your shoulder in case there are legal problems to solve.
Also, these commercial real estate investment companies will help you balance the books and secure reliable renters, while still maintain your property at top-tier conditions. Handling all these duties on your own can be overwhelming and ineffective especially if you’re just getting started, thus getting professional help is recommended.
Commercial real estate investment companies also play a crucial role in profit maximization as they are adept in maintaining cost effectiveness in your property. They deploy operational analysis techniques to streamline maintenance operations, to eliminate any avoidable costs.

Multifamily commercial real estate is driven by need. Whether economies shrink or grow, people need houses, and most people cannot afford a multiple-family home.
However, while it’s a still a good idea to invest during inflation it’s important to remember that multifamily commercial real estate investments do not give instant insulation against inflation. To see the actual picture of how it protects investors from the blips of inflation, take a long-term analysis of about 5 to 7 years of investment. You’ll realize that it paces incredibly well under inflation through rents and other fees.

Real Estate Investment Strategies

Before we talk about different real estate investment strategies, let’s recap a few things: Commercial multifamily investments are a type of real estate investment that can be made by both individuals and businesses. Commercial multifamily investment can thrive in any area where there is demand for space for businesses and homes. The investment in properties can also be viable in regions with high economic growth potential. Click here to see 9 reasons to invest in commercial multifamily.

How to Invest in Real Estate

Commercial multifamily investment should be your top priority if you are looking for ways to be a real estate investor as multifamily property investing ensures a steady stream of cash flow.

If your decision as an investor is in the line of commercial multifamily investments, you can achieve it either actively or passively.

In active property investing, potential investors can form a limited liability company and find a property independently.
To identify the property, underwrite it, perform due diligence, obtain financing, close the deal, and manage the property, investors must possess some experience, resources, and ample time.

Passive property investments allow investors to outsource a professional agent or firm to acquire and manage their multifamily properties.
Passive investment is the best option in commercial multifamily investment because you get experts in real estate working for you. They increase your potential investment returns by purchasing high-quality multifamily apartments.

Strategies For Real Estate Investing

Due to the increase in demand for occupancy, commercial multifamily investment is a viable solution. Multifamily property investment can be via real estate investment trusts. Strategies for real estate investing:
• Real estate investment trusts (REITs)
• Real estate investment groups
• Real estate limited partnerships
• Real estate mutual funds

Reits: Real estate investment strategies

Strategies for Real Estate Investment: #1
Real estate investment trusts (REITs)

Real estate investment trusts (REITs) own and operate hundreds of apartment complexes, shopping centers, office buildings, and other properties across the country. Most REITs own only a few dozen properties at any given time, but they benefit from economies of scale that allow them to keep costs low while providing investors with steady returns.
Here are three types of REITs to consider:

Publicly traded REITs

They are eligible to trade on the New York Stock Exchange and the Nasdaq Exchange. It requires the following changes: A brokerage account, registration with the U.S. Securities and Exchange Commission, and audited financial reports.

Public non-traded REITs

They must register with the Securities and Exchange Commission and provide audited financial reports.
They are not eligible to trade on the stock exchanges. You can purchase public non-traded REITs through your finance manager or online real estate platforms.

Private non-traded REITs

They don’t need to register with the Securities and Exchange Commission. In most cases, they’re only open to high-profile individuals with higher income.

Advantages of REITs

Compared to other stocks, REITs pay high dividends and offer you a diversification from the stock market. Commercial multifamily investment through REITs protect investors from double taxation because they don’t pay federal corporate income tax.

REITs have potentially high returns on multifamily investment and offer greater liquidity than owning real estate outright.

Public REITs are transparent and provide audited financial statements. Lastly, REITs are cheap as compared to buying commercial real estate outright.

Disadvantages of REITs

• Higher tax liabilities because REITs pay nonqualified dividends.
• A change in interest rates can affect REITs.
• REITs face high potential property-specific risks. Such risks include tenant move-outs, industry headwinds, and technological disruption.

Strategies for Real Estate Investment: #2
Real estate investment groups (REIGs)

Real estate investment groups (REIGs) are a popular way to diversify and grow your real estate portfolio. These groups typically consist of multiple real estate investors with a pool of resources to buy, manage and sell properties.

Investment in properties under real estate investment groups allows you to invest and hold physical real estate without a high initial investment cost. You can access the expertise and experience of other investors to help you make informed decisions about how to invest in real estate.

Subsequently, REIGs save time by promoting sharing of tasks among members or hiring agents to manage the multifamily investment. It can also diversify your portfolio by providing a wide range of physical assets to consider for property investing.

With REIGs, we can learn how to buy and operate real estate without the expense of buying, managing, and renting all the properties yourself.

Commercial multifamily investment through REIGs has some shortcomings. There is no guarantee for high returns as it depends on the group’s knowledge, and some groups might have malicious members or interests.

Cases involving conflict of interest may arise, and the subscription or membership fee can reduce your total returns. Some REIGs contracts make it difficult for you to withdraw your money.

Additionally, If you buy into an REIG, you’re essentially taking on the risk that the other members won’t follow through with their commitments. Also, depending on REIG for advice about how best to invest in real estate could put our wealth at risk — if they don’t give good advice or aren’t honest about their ability to help us succeed as investors.

Strategies for Real Estate Investment: #3
Real estate limited partnerships (RELP)

RELP is a real estate investment fund that allows you to invest in properties and sell them soon after acquisition.
On many occasions, professional real estate investors and brokers with experience buying and selling properties hold the RELPs.

RELPs can be structured as either single-family homes or commercial multi-family investments, depending on the type of investors they attract.
The RELPs management company manages the buying and selling process while providing ongoing financial support to both parties involved in the transaction.

Strategies for Real Estate Investment: #4
Real estate mutual funds

A mutual fund is the simplest way of investing in properties making it one of the most attractive real estate investment strategies for beginners. Active mutual funds tend to be less expensive when investing in real estate because professionals manage them.
The manager ensures all the investments are adequately diversified across different asset classes while you only collect dividends.
In passive mutual funds, the investor tracks and works to match a benchmark index in the market.

Why You Should Consider Investing in Real Estate

Real estate investment is a great way to generate passive income and build wealth. Investing in multifamily real estate can be a reliable source of additional monthly income, reduce wealth risks by diversifying your portfolio, and be the best way to control your physical properties.

In commercial multifamily investment, you can acquire long-term equities and wealth. It also allows you to own passive investments that agents can manage on your behalf.

Housing as an investment in commercial real estate is growing in popularity. It offers the opportunity for greater control of your investment, provides more flexibility, and can often be a more manageable and less expensive method of building wealth.
The best part about commercial multifamily investment is that you don’t need to worry about tenants or maintenance. You can build or hire a management team to handle your investment in properties. To get started on how to be a real estate investor, contact us today!

1031 Exchange Rules: Property Exchange and Starker Exchange

1031 Exchange Rules: 1031 Property Exchange, 1031 Starker Exchange

Capital Gains with Passive Incomes

Before we talk about the 1031 exchange rules we need a bit of context. The concept of capital gains remains a debatable topic among many Americans due to the taxes involved. We say that capital gain is selling an asset for a profit. For example, if you buy and hold a rental property for resale at a higher price, the IRS considers that as taxable income and is subject to tax deductions. However, the asset is not subject to tax during the holding period.

Passive income is a great strategy that many investors use to buy and hold assets for prolonged periods for slow but steady wealth creation. It is a good choice as you do not incur the periodic fees of buying and selling as in active investments. For maximum passive income, many investors opt for the 1031 property exchange.

What is an Exchange?

Unlike the literal meaning of the word exchange, it does not mean a swap of properties. At times, it can only be one party conducting the exchange. On the other hand, it is a transaction for the other party, only that it does not involve the exchange of money.

Like-kind in exchange does not imply an apartment for an apartment. Instead, it means an exchange that involves investment or business property. With this understanding, let us now define the 1031 property exchange.

What is 1031 Property Exchange?

1031 is a US tax code from the IRS that explains exhaustively deferred tax on capital gains. That said, the 1031 property exchange is a revenue act that allows a passive investor to defer taxes on capital gains to fund other like-kind investments. A little history will give you a clear understanding of how far this act has come.

The revenue act began in 1918 when taxes helped the US finance World War I. However, at this stage, there was no provision for 1031 property exchange. In 1921, congress enacted the 1031 exchange, which included transferring different assets, including non-like-kind properties. The clause was quickly amended in 1924, prohibiting the exchange of non-like-kind properties while maintaining like-kind interactions.

What is 1031 Starker Exchange?

In 1970, Starker filed a case against the US that marked the beginning of deferred taxes on capital gains. In 1967, the Starker family entered a contract with Crown Zellerbach Corporation on an exchange of over 1800 acres in Oregon. However, Crown did not have an exchange at that point. They agreed that Crown would keep an account for the Starkers until they found a suitable exchange.

Crown later found an exchange within five years, and they agreed to add a 6% growth factor to Starkers’ balance. Upon completion of the exchange, the Starkers’ received more in the market value than the sold item and filed zero capital gains tax. The Starkers’ argued for non-recognition of a property’s gain or loss after an exchange of like-kind property for the same use, investment or business.

The IRS charged the Starkers over $335,000 in taxes, which they paid but filed a claim for a refund. According to the Supreme Court judgement on the case, the Starkers did nothing wrong, as no rules were spelt out in the 1031 exchange. This ruling began a tax deferred exchange popularly called the ‘Starker exchange’. After this case, the IRS changed to include property identification and deadlines for like-kind in the 1031 starker exchange.

Why Are 1031 Exchange Rules Important?

The 1031 exchange rules keep changing over the years. For example, before 1989, a passive investor would make a deferred tax on exchanges of like-kind domestic and foreign properties. However, the Revenue Reconciliation Act of 1989 limited the exchanges to apply only within the US. In January 2018, the Tax Cuts and Jobs Act (TCJA) became law, meaning that only tangible assets are applicable for 1031. It implies that real estate is the only form of asset that you can reap the 1031 benefits. Knowledge of what is applicable will help you remain on the safe side of the law and accrue the attached benefits of this act.

The main advantage of understanding the exchange rules is tax deferment. If you opted out of 1031 before selling a property, your proceeds would attract capital gains tax. However, if you continue with 1031, your properties will be handed down to your heirs at current value upon death. Moreover, 1031 shields your property from depreciation recapture and thus an excellent way to create generational wealth.

1031 allows you to create a nice passive cash flow buildup. Instead of looking for another asset after liquidation, 1031 ensures that you find a replacement immediately and continue making an extra income.

Capital Gains with Commercial Multifamily

Commercial multifamily investments are a profitable way of making passive incomes. However, the initial capital is way too high for individual investors prompting many to use real estate syndication. A syndicate works so that many investors pool resources together to buy commercial multifamily. In this model, the syndicator bears the burden of being the landlord and property management. However, the tax management task still lies with the individual investors.

Many investors enjoy no tax on capital gains with 1031 when investing in commercial multifamily. Nonetheless, at one point in time, you will have to pay the taxes as it is different from a tax relief. There are a few rules that allow one to benefit from 1031, which include:
• Identify the property before the lapse of 45 days
• The new property must be of nearly the same value as the original one
• The exchange must happen within 180 days

There are many syndication benefits in commercial multifamily investments. The most notable being less upfront capital and lesser risk from the investment. It also allows novice and seasoned investors to make deals they couldn’t get on their own. The many units involved enable the syndicate to enjoy economies of scale, translating to more benefits for the investors. An experienced syndicator can help investors reap substantial profits from the venture.

Conclusion

Capital gains of commercial multifamily units are one of the best ways to create wealth. No wonder most of the Forbes top 400 use the 1031 exchange provision in multifamily investments to protect their wealth. However, before you opt for 1031, you must look for an experienced tax expert as the exchange rules can be complicated and confusing for many. If you’re interested in reading it Cornell Law School has it up on their website.

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Benefits Of Using A Real Estate Agent To Sell Your Home or Investment Properties

Would you perform the most important transaction of your life without assistance? When listing to sell your property, it may be tempting to pursue a for-sale-by-owner (FSBO) transaction. Real
estate commission savings might amount to thousands of dollars. However, the dangers and
drawbacks of selling real estate on your own might soon exceed the additional income. Below
are a few benefits of using a real estate agent to sell.

The Selling Procedure May Be Lengthy and Tough

From the time you decide on listing to sell your property until the last closing, a number of
crucial procedures must be taken. Most clients are unaware of all the steps involved in the
process. Property sellers often prefer to have the details handled flawlessly rather than working
out what’s next and when to do it. Initial price determination is a challenging aspect of the
procedure. Selling real estate price is impacted by various factors, such as the season, the
economy, the projected expansion of the neighborhood, and previous sales. Using a real estate
agent to sell may help this procedure run smoothly.

Get Greater Buyer Exposure

Over many years, real estate brokers have cultivated a vast network of personal and business
relationships as they understand the benefits on selling investment properties. This contact list
comprises clientele, other real estate firms, and agents who may showcase your property to a vast
pool of possible purchasers.

When looking for a property, many purchasers contact real estate agents, indicating that the
majority will be interested in properties offered by agents. Suppose you do not hire a reputable
real estate agent for selling real estate. In that case, you will increase the likelihood of lower
selling prices, longer days on the market, or errors during the selling commercial multifamily
property process.

Avoid Spending Resources on Unqualified Buyers

Numerous disruptions are caused by unqualified purchasers for the property seller when listing
to sell. Rather than attending to genuine purchasers, the seller may waste effort and time showing
the property during appointments and phone calls.

Real estate agents have the knowledge and skills to discover qualified and motivated purchasers
and those who are interested in purchasing the property. Concentrating on the ideal purchasers
will increase the likelihood of concluding a transaction at the best price. Using a real estate agent to
sell will help you avoid spending resources on unqualified buyers.

Obtaining an Accurate Property Evaluation

Several elements are involved in selling commercial multifamily or other types of property. If
you price it too expensive, your property may remain on the market for many months; if you
price it too low, you may realize you left cash on the table.

Real estate brokers sell property everywhere daily, so they have extensive market knowledge.
Additionally, they have access to many resources, such as recent and prior property sales in the
nearby area. Using their knowledge, available resources, and similar listing to sell, a realtor will
be able to accurately price your property so that it appears in search results. Finding the ideal
target will aid in selling commercial multifamily property quickly. Investing in real estate with
commercial broker and using an agent to help you sell is the sure way to get the best price for
your property.

Utilizing Real Estate Professionals in Negotiations

When beginning a search for the ideal property, prospective purchasers may be skeptical of
private sellers. People may suspect you have something hidden when listing to sell privately as
you do not understand the benefits on selling investment properties using an agent. One of the fantastic benefits of using a real estate agent to sell is that you quickly acquire an image of legitimacy and professionalism. An additional benefit of using a real estate agent to sell a commercial multifamily unit is that they may assist with negotiations.

Negotiating with prospective purchasers can be difficult, especially if you have an emotional
relationship with your property. Real estate brokers would be able to address the problem
objectively to secure you the best possible offer. When you hire a professional to negotiate on
your behalf, you may profit from their negotiating expertise. The client will also be uninformed
of your estimated property worth. This might result in a higher ultimate sale price since your real
estate agent would be able to negotiate a better offer without the client knowing your exact limit.
Using an agent for negotiations protects your privacy.

Property selling is a Full-Time Job

Your time will be spent with marketing, setting dates for showings, meeting with clients to show
a property, planning and holding open property, or accommodating potential buyers who are
only in town for a day. Most individuals who are selling their property have a busy schedule of
professional and personal obligations, and the prospect of taking on all of the extra activities
associated with selling a property is pretty daunting. The time, work, and aggravation you will
likely face while selling your property will not result in significant savings or increased funds.

Benefits of using a real estate agent to sell. Mi-Ella

You Ignore the Defects in Your Property

Real estate agents are professionals in property selling techniques. They may accompany you on
a property tour and point out the modifications you must make to attract customers and obtain
the best bids. They can detect problems you are blind to, so you see them each day or because
you don’t consider them flaws. They may also assist you in determining which input from
prospective purchasers you should act upon to boost your property’s chances of selling once it
has been placed on the market.

Whoever is determined to sell their property should contact an interior designer or property
stager to evaluate the property’s existing state and market attractiveness. Before placing a
property on the market, all sellers must employ an expert cleaning service to do a thorough

cleaning. A thorough cleaning will help eliminate any distinctive aromas, such as pet odors, that
the residents cannot detect since they are constantly exposed to them.

Use A Real Estate Agent To Sell

Learning how to sell your property without a broker is a complicated process and selling your
property will likely be one of the largest deals of your life. You may not understand the benefits
on selling investment properties. You might attempt to do it yourself to save cash, but there are
several advantages to hiring an agent. The benefits of using a real estate agent to sell are many; using a qualified broker can increase your property’s visibility, assist you in negotiating a better bargain, devote more time to the sale, and prevent you from ruining it with your emotions. An agent adds experience to a complicated transaction with several possible financial and legal problems, which few FSBO sellers possess.

Investing in Boston Real Estate in 2023: Multifamily is a Good Bet

Don’t Sleep on Boston! Investing in Boston Real Estate Makes Sense for a Variety of Reasons:

Boston is one of the fastest-growing markets for commercial multifamily residential construction in the United States; more and more people are investing in Boston Real Estate. Its commercial multifamily market is hot and getting hotter and should be on your list for best cities to invest in real estate for 2023. The city has been on a multifamily building tear in recent years, with the number of units under construction set to surpass the number of units available at the peak of the prior cycles. The units delivered in 2021 were about 6,774 with the vacancy rate standing at 3.9%. The asking rent grew by 10.7% in 12 months to stand at $2,604 in the market.

Developers continue to target the Boston market with new projects, both in the CBD and in the surrounding neighborhoods, and investors are once again becoming interested in the space. This upward trend has been most pronounced in the Class-A sector as more investors have been investing in Boston real estate. However, the construction of new rental units has also placed significant upward pressure on rents. It has negatively impacted residents who are currently paying high prices to live in the city.

Capitalization Rates In Commercial Multifamily

For most investors, cap rates are the most important metric for evaluating the performance of an investment in the Boston commercial multifamily market. The cap rate is the rental yield divided by the current market rental yield on a comparable property. This figure gives investors an idea of how much money they would be making on their investment relative to the rent they are collecting. By comparing their returns to other investments, investors can determine if they are getting a good deal or if they should look for other properties. (See our recent blog for more info on Cap Rates)

The higher the cap rate, the higher the investment risk. The areas that had low cap rates and high price tags included areas close to MIT and Harvard, Downtown, Fenway/Mission Hill and Seaport area. The market cap rate had a high of 6.0% in 2016 in the United States, 5.0% in both Boston and Boston 3 Star, and a value lower than 4.5% in Boston 4-5 star. There has been a gradual decline in this value across the 4 markets, with 2021-2022 gaining the least percentages of about 5.2% in the United States, 4.35% in both Boston and Boston 3 Star markets and about 3.9% in Boston 4-5 Star.

The projections for the subsequent years 2022 to 2025 showing a flattening curve with a slight rise in this figure. The average cap rate based on the sale comparable statistics stood at 6.0%, with a low of 2.1%, a median of 6.0% and a high of 12.0%. Various factors affect the cap rate, including:

a) Market Size Real Estate Return On Investment

Market size is a critical factor in determining the success of an investment property. A property located in a large city will likely have a much lower cap rate than a property located in a small town. There are large amounts of capital available for investment in large cities. It thus attracts a huge competitive population as opposed to small towns. The overall supply and demand of the units experienced a steady rise from 177, 329 in 2010 to 247,659 in 2021.

This also signified a percentage increase from 0.9% to 3.1%. The supply and demand of 4 and 5 star rose from 30, 565 to 93,668 units marking a growth from 5.0% to 7.4% and the 3 star supply and demand rising from 78, 268 to 85,441 units marking an increase of 0.2% to 1.3% in growth. 1 and 2 star supply and demand grew from 68,496 in 2010 to 68,550 in 2021.

The overall sales increased from 145 to 412, an increase from $1B in volume to $5.1B. The overall deliveries and under construction increased from 177,329 units in 5,943 buildings in 2010 to 247,657 units in 6,495 buildings in 2021.

b) Best Real Estate Investments In The Right Location

The location of a property relative to the cap rate in a given neighborhood can have a large impact on the property’s return on investment. The safety of a location can impact the cap rate. An insecure place is often risky and lowers the market demand, thus raising the cap rates. It then becomes harder to invest in such areas due to the security uncertainties.

Boston has had an increase in demand in the multifamily market. The growth in sales is one of the reasons why Boston is best suited for an individual seeking to invest in multifamily apartments. The cost for a unit in Boston is about $460,000 while the same unit costs about $250,000 elswhere. In East Cambridge, a two apartment building cost $325 million.

c) Growth Potential – How To Create Wealth by Investing In Boston Real Estate

The growth rate of property values over the past year has significantly impacted cap rates. As the growth rate increases, the average cap rate decreases. Also, as the growth rate decreases, the average cap rate increases. It means that the same amount of money will buy a home with a lower cap rate today than it would have been able to buy the same house with a higher cap rate a year ago. Here is a breakdown of the change (YOY) across three different annual trends.

The vacancy change in 2020 Q4 in the 12 months stood at -2.9%, a historical average of 4.7% and a Forecast average of 4.4%. The peak of the vacancy change (YOY) had a figure of 8.0%.

The asking rent growth over the 12 months in 2001 Q1 was 10.7%, with a historical average of 2.2%. The forecast average for this annual trend was 4.2% with a peak value of 13.1%.
Effective Rent Growth (YOY)in the 12 month period stood at 12.7%, with a historical average of 2.2%. The annual trend also had a forecast value of 4.2% and a peak value of 13.6% in 2021 Q4.

d) Capital liquidity – Capital Investment Real Estate

Cap rates are also affected by how much capital is available to invest in the property. When there is a lot of capital available, investors require higher returns to pay for the risk of investing their money. As a result, cap rates are typically lower than in a market with little capital liquidity.

e) Asset stability

When determining cap rates, the first thing you should consider is a property’s asset stability. The better the asset stability, the lower the cap rate can be. Property with better asset stability can withstand a higher interest rate. It makes it easier for investors to purchase properties.

The multifamily market in Boston is strong, with rental yields and capitalization. It is largely due to the high demand for apartments in Boston, which has caused vacancy rates to fall to 3.9%. Even with these low vacancies, there is still a lot of upside for investors in this market, as the vacancy rate is expected to fall further. This increase in supply has led to a decrease in cap rates, which is likely to continue over the next several years. According to data from CoStar, vacancy stayed below the 5% mark while several other markets witnessed drops from about 14% to 5%.

Cap Rate in Multifamily Investment

Several benefits come with having a low cap rate. First, a soft cap rate means that your property will appreciate faster than properties with a higher cap rate. As a result, you will have more equity built up over time.

Another benefit of a low cap rate is that it does not require a large down payment. It makes it easier for first-time homebuyers to get into the real estate market. As your holdings appreciate, the leverage provided by a low cap rate will allow you to purchase more real estate. Such rates can give excellent returns. If you have a reduced cap rate, you won’t have to put as much money down on your home. It makes it easier for you to build a successful real estate career.

High Sales Volume

One of the most critical factors in real estate is sales volume. Sales volume is a vital indicator of the real estate market’s health. Low sales volume means a lack of demand, which translates to weak prices. High sales volume means a robust economy and a healthy real estate market. It is crucial to the property owner and a real estate agent. The more houses you sell as a real estate agent, the more money you get, and your career becomes more successful.

For many years, Boston was known for being one of the most expensive cities in the United States. It was primarily since real estate prices in Boston were driven up by the need to live as close to downtown as possible. Its world-class museums, excellent sports teams, and loads of cultural events make it a great place to live. The overall sales for Boston Multi-Family units saw a total of 145 deals made in 2011, translating to a volume of $1B with a turnover of 3.7%.

The average price for the sales made was $8,055,346 with an average price per unit coming to about $187,165 with an average cap rate of 6.5%. The deals reached a high of 412 in 2021 with a volume of $5.1B and a turnover of 5.2%. The average price for these transactions came to $12,950,518 with an average price per unit coming to about $406,193 and an average cap rate of 6.4%.

The market trends witnessed from 2010 to 2021 saw the price per unit steadily rising from $223,727 per unit to $452,173 in 2021. This increase marked an increase in the price index from 134 to 271. With the cap rate decreasing from 5.5% to 4.3%. Sales in the Boston area’s single-family home market set another record in 2017, with the region’s five-year streak of double-digit annual increases in sales volume ending in the fourth quarter. The area now has the nation’s second-highest level of sales, behind only San Francisco making investing in Boston real estate a very hot prospect.

Growth in the Job Market

COVID-19 affected most sectors of the economy and caused several individuals to lose their jobs due to restrictions and redundancy. While this may be true, there is a positive forecast of the job market in Boston with a projected growth of about 4.9% in 2022. This increase in job growth is anticipated to continue through to 2026 with an average of 0.7% every year. Although the hospitality and health sector were adversely affected, the projected employment growth of the health industry estimated at around 5%. The R&D industry in Boston has added about 17% of jobs which amounts to 13,500 jobs in the market from February 2020.

Is it a Good Time to be Investing in Boston Real Estate?

The Boston Commercial Multifamily market is one of the largest and most active in the nation. The Boston Multifamily commercial overall sales stood at $5.1B in volume with a 5.2% turnover in 2021, had a vacancy of 52 units with a percentage of 4.6% and ranked 24 in Downtown Boston. It also came in 1st with a total of 1,193 units, 10.7% investment and a 0.4 construction ratio. Since the financial crisis, the city has been a hotbed for development, with 6,495 buildings and 247,659 units and a vacancy of 4.3%. This intense activity will continue in the coming years, fueled by strong national and local economic growth and a growing millennial population.

Boston has an exciting multifamily commercial real estate market that serves as its backbone. The current market trends and projections with 6,774 delivered units in the past 12 months, 13,408 absorption units, a vacancy rate of 3.95 and a 10.7% asking rent growth in the 12 months are favorable statistics for investors. There is no better time to get in on the action than now. Learn how to start investing in Boston real estate now by scheduling your free consultation with Mi-Ella Realty!

4 Tips for Investing in Commercial Real Estate

Commercial multifamily investment is an excellent strategy if you aim to achieve financial security. While there are several options, real estate investing provides one of the best ways to secure your money with guaranteed returns. However, it is essential to understand what it entails, the risks, and the market trends. If you are starting in this sector or have been investing in the past, here are essential tips for investing in commercial real estate that are worth considering.

1. Understand the Costs Involved

Real estate is a costly venture, and it is vital to have a picture of its financial demands. Apart from the initial cost of acquiring property, you should factor in the additional costs of maintenance, upgrades, utilities, and tax implications. Consider different sources of financing the investments such as personal savings, asset financing from an institution, or taking a loan to cover the costs. Syndicating as a passive investor in commercial multifamily can come be more valuable if you looking to pool funds with other partners to assume less cost.

Other costs may include home owner’s insurance premiums, including hazard and fire insurance, liability insurance, and landlord insurance. Having an emergency fund is beneficial especially to help cater to expenses not foreseen. Remember that mitigating a problem in its early stages helps minimize losses and retains the value of your investment.

2. Choose one of the investments categories

Investors who have been active in the field for several years will always advise you to diversify your real estate investments. Real estate investments are categorized under two broad categories: active and passive investments. Under active investments, you will need to sacrifice your time, money, and physically labor for it to succeed. Some of the examples under this category include management of residential properties and house flipping.

The other category of this investment is a passive investment which does not require your physical presence in managing. Examples of this kind of investment include real-estate funds, trust, and crowdfunding. In this manner of real estate investment, you do not need to manage any of the properties nor commit a lot of your capital.

3. Look into types of Property

You can get into several types of investments, including single-family homes that have consistently shown growth and continuous appreciation. You can choose to invest in commercial real estate or residential rental houses such as multifamily houses. These options allow you to rent out apartments as the landlord. You can also turn the house into a vacation rental to maximize your earnings and deal with a specific clientele. If you are not keen on keeping the property for long, you can consider flipping the property for much faster returns. It will help if you first consider the ultimate goal of your investments before selecting them.

4. Scout the Area

Location is a significant factor of consideration when choosing to get into real estate. Before you purchase any property due to low pricing, check the neighborhood, amenities in and around the location, and the property’s market value. Having a clear understanding of the rental type you want, such as a single-unit or multi-unit investment, will help you narrow down the specific locations to consider. You should also consider the competition that the location presents on the type of rental.

If you are interested in commercial property that may house businesses, check the area’s population and accessibility. Otherwise, if you want to invest in vacation or residential houses, consider nearby facilities such as hospitals, recreational and shopping centers, schools, and other public institutions. Another critical factor is considering the area’s growth rate you would love to purchase the property. Fast-growing areas are more profitable in the long run; hence your property can appreciate at a much faster rate if you consider selling it.

Conclusion
As much as real estate is a lucrative venture, when not carefully planned may result in losses that may take time to recover from when not carefully planned. The above tips are useful as you choose an investment and profit from the venture. Stay tuned to our blog for more tips for investing in commercial real estate!

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