July 22, 2024 | 3 Minute Read Time
Multifamily real estate is a dynamic market with huge opportunities. It goes beyond just urban high-rises, suburban apartment complexes, and institutional developments. The sector operates on a much larger scale, with institutional investors and private equity firms owning a significant portion of the market.
This scale can make it difficult for smaller investors to enter and establish themselves. This is where niche multifamily investing becomes important.
Niche multifamily investors focus on specific demographics, locations, or needs and target renters with tailored products or services. They don’t need to manage a massive 350-unit property to achieve rent growth and revenue. By identifying the right niche, investors can build a sustainable business with just a few units.
Here are two niche multifamily opportunities for your consideration.
Sub Markets
While national economic trends in inflation, employment, and wage growth impact multifamily housing, real estate is inherently local. A trend affecting the national market might not be noticeable locally.
New investors can carve out niches by focusing on specific submarkets. Sometimes, institutional investors rely solely on data and miss the nuances of the neighborhoods they target. They might avoid areas based on headlines about urban issues, such as crime. This is where local investors can gain an edge. While some institutions invest in oversaturated U.S. markets, smaller investors can target locations with lagging multifamily construction. Multifamily investors should immerse themselves in local neighborhoods to find opportunities.
Empty Nesters
One rapidly growing rental demographic is renters in their 60s, which increased by 43 percent in the 2010s and continues to grow. Baby boomers, with about $18 trillion in home equity, are often choosing to sell their homes and rent in desirable locations or near family. Many downsize to spaces with less square footage, fewer stairs, and lower maintenance. However, a market gap exists here.
The U.S. Census projects that 73.1 million Americans will be 65 or older by 2030, with that number rising to 94.7 million by 2060. The Urban Land Institute forecasts a 74-percent increase in senior renter households by 2040. This rental demographic demands specific needs and services, from single-floor units to high-end amenities and long-term care. With the right approach, multifamily operators can command premium rents in this market.
We suggest amenities such as upgraded lighting, smooth flooring surfaces, and automated doors to attract senior renters. Properties might also benefit from flexible-use spaces that can adapt to a renter’s changing physical needs over time.
The demand for multifamily housing will continue to grow across all demographics. The National Apartment Association and National Multifamily Housing Council project a need for 4.6 million new units by 2030 to meet demand. People need places to live in various areas, at different price points, and at multiple stages of their lives.
In this expansive market, small details matter. By identifying a niche market and connecting with renters, multifamily investors can build a successful business while providing renters with what they seek most: a home.