It is not possible to predict the future with 100% certainty, but the facts support the statement that the multifamily segment of real estate market is outperforming all other types of investments.
We’ve got more than enough demand. Between the Millenniums and the Baby Boomers there is definite increased interest in renting apartments.
Have we thought that too many apartments are being built in Broward County? Since 2006 we did not see any new multifamily construction, therefore the answer to such a question is a strong resounding NO.
We’ve got a long way to catch up with the market demand.
Many of my investors are expressing concern related to a valuation of this type of asset defined by a CAP Rate. In actuality CAP Rate will continue to go down in the coming years. There are multiple reasons for this prediction which we will not be touching on in this publication due to the complexity of the issues.
There is no shortage of interest and/or capital available for this sector of real estate.
The main challenge is to find the willing Sellers in South Florida. It is becoming harder and harder to come by multifamily deals.
What are the main driving factors for such a condition?
1. Foreign investors are looking to bring a capital into the most economically stable country in the world. They can afford to pay a price that would yield an extremely low return because they get the benefit of currency appreciation. 3% CAP Rate for them is not actually a 3% return.
2. Florida is the State with no Income Taxes.
3. South Florida has shortage of land available for development which increases the value of existing properties.
4. And one more Very Important Factor, we have wonderful weather most of the year.
The challenge is to find Sellers that would sell multifamily property at the market value. When someone considers selling, he or she is asking what to do with the money and where it can be reinvested. This information is not to discourage anyone from looking for reasonable (hopefully) Sellers, but provide a brief overview of the particular sector of the market.
As a buyer in South Florida, it is probably a good idea to invest even if the initial return seems too low. Almost all lenders love the product and provide financing with a low interest rate. If buyers exercise their leverage they should be focusing on the Internal Rate of Return versus CAP Rate. Multifamily is considered to be an exceptional investment in today’s market.
I am always available to answer your questions.