Foreign capital is pouring in the Sun Belt region despite short-term headwinds: What is ahead for the US multifamily sector?
Foreign capital is pouring in the Sun Belt region despite temporary short-term headwinds: What is ahead for the US multifamily sector?
This is one of the best times to invest in the US multifamily sector, particularly in the Sun Belt region.
International investors flooded the US multifamily market with $21 billion worth of invested capital last year. Foreign investors avoid the metropolitan and coastal cities, and instead focus their investments in the Sun Belt region and secondary markets.
Is this going to continue and what is ahead for the multifamily market in 2022?
Why is multifamily the most popular investment segment for foreign real estate investors?
The primary reason why the multifamily sector is attracting more investors than ever before is their preference to own assets that have predictable and safe cash flows and to achieve high returns that multifamily properties offer compared to fixed-income alternatives like high-grade corporate bonds or government debt. Moreover, multifamily is a very attractive investment avenue during an inflationary environment because real estate investors in the multifamily sector can adapt for inflation with monthly rent increases, but office building rates are locked in for years.
Canadians spent $11.9 billion on U.S. multifamily properties last year, accounting for 56% of all cross-border investment in U.S. multifamily sector, with Bahrain, Switzerland, Israel, the U.K., Singapore, Germany, Japan, China and the Netherlands are completing the top 10 list.
Last year, foreign multifamily investments increased 30%, while spending on office assets decreased to 14% from 27% in the prior year.
Overall investment in the US multifamily sector increased by 56% year-over-year to $63 billion in Q1 2022, that marks the strongest first quarter on record and bringing the trailing 4-quarter total to $374 billion.
Due to the current uncertainty, many investors are looking for stable investments that will appreciate in value and generate solid and steady cash flows in the future.
It is estimated by Freddie Mac that the US housing market is approximately 4 million homes short of market demand, which is creating an unprecedented demand for multifamily properties that help fill the gap and meet the shifting preferences of baby boomers, Gen X, millennials, and Gen Z.
The ongoing migration patterns towards the Sun Belt region, heightened inflation, shortage of new construction, and the rising demand of the key demographic groups for multifamily housing are not only contributing to a perfect storm for future rent hikes, but it is a situation that will very likely enable real estate investors to enjoy future cash flow and capital appreciation in the following years.
By following this investment strategy, real estate investors will not only protect their invested capital from high inflation, but they will be also able to maximize their future cash flow and returns.
While investing in primary markets and class A properties is the primary preference of most real estate investors, this approach leads to saturation in primary markets and more compressed investment caps. In this respect, investing in secondary markets and repositioning of B and C class properties might provide as good or better return on investment for real estate investors than focusing only on primary markets and A class properties.
However, making the selection of a right strategic partner with a proven track record that can execute the entire process from start to finish without potential delays, loss to lease and higher construction costs is the most important factor that real estate investors need to take into account if they want to not only maximize their future returns and cash flow, but also to have a complete peace of mind as part of the process.
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About Adivo Construction
We are a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.
Our mission is to assist our clients in finding the right balance between capital expenditure and appreciation potential by designing and executing customized renovation programs that are focused on increasing cash flow return and overall return on investment.
We have completed over 100 repositioning projects for publicly traded and privately held domestic and foreign companies in states such as Florida, Texas, Kentucky, Oklahoma, Georgia, South Carolina, Utah, North Carolina, Tennessee, Indiana, Michigan, Missouri, Arkansas, Ohio, Arizona, Nebraska, and Kansas.