With the Fed raising interest rates, some real estate investors are now concerned that their returns will not be as high. This is because when debt becomes more expensive, it can leave less room for profit in real estate investments. Nonetheless, multifamily investments still generally provide a steady and good ROI, even if the rates are slightly lower than they were prior to the pandemic. Rather than dwelling on negatives and fear, it's important to remain calm and capitalize on the positives of this point in the market. Let's take a look at what these are:
Positive #1: Housing Demand Will Only Increase.
There are a number of positives for the real estate market when the fed raises interest rates. For example, when interest rates are higher, there is less demand for single-family housing by individual buyers. This is because many people prefer to buy homes when interest rates are lower to save money on interest throughout the life of the mortgage loan. Less demand for single-family homes means that more people will turn to multifamily housing.
When demand by individuals for single-family housing drops, it can also trigger more institutionals to buy single-family homes. This is because they know that people will still need somewhere to live whether or not they want to buy a home. So, when more institutions buy homes, it puts further pressure on the housing market, causing more people to rent.
42 million households in America now rent their homes and this number is likely to increase because demand for multifamily housing will stay strong during periods of rising interest rates. This makes multifamily property investing a good option for investors even during volatile times.
Positive #2: Volatility creates opportunities.
Since the rising interest rates and inflation are a big challenge for less seasoned operators, it’s very likely that certain assets will become distressed and need new, professional operators to “rescue” these properties. This means deal flow, which has slowed down recently, will likely start to pick back up as the pressure continues. This can present a great opportunity to acquire new assets, improve the operations, and continue to scale out your portfolio.
Along the same line, with debt becoming increasingly expensive, many owner-operators are not able to raise the required capital for financing. This means the competition is thinned out considerably, and will likely help reduce extreme bidding wars. So, not only does the volatility create more opportunities for identifying bargain assets, but the chance of winning these deals is also improved.
Positive #3: Getting creative in managing current assets.
- Increase cash flow by slowing renovations.
Because demand for multifamily housing tends to stay high during periods of rising interest rates, you do not necessarily have to renovate in order to keep occupancy high. In fact, every unit off market for renovations is a unit not generating income. Slowing the rate of renovations can be a key way to still implement your business plan while balancing the focus on keeping cash flow strong.
- Use the property to create additional income streams.
Many property owners use their properties to generate additional income streams such as overflow parking for special nearby events, renting unused storage spaces out, leasing extra space as a conference room, etc. Think outside of the box; there might be a way that you can make more money off of your property.
- Installing Amazon package lockers.
Simply installing Amazon package lockers can drive up the rental value of a property. This is because tens of millions of Americans use Amazon every year and many of these people who live in multifamily properties want an easy way to order and receive Amazon packages without having them get stolen. So, having Amazon package lockers can make your property more desirable, and you can charge a premium for the service.
Conclusion
Despite the fact that the current real estate market has a high level of volatility, smart investors are taking advantage of the opportunities that exist within this market. If you are trying to figure out what to do during this market remember that rising interest rates tend to increase demand for multifamily housing due to falling mortgage applications. You should also remember that increased single-family home purchases from large institutionals are also a positive for multifamily real estate, because this too will push more people to live in multifamily properties.
Further, remember that you can increase profitability for your existing properties by slowing renovations, finding creative ways to use your building’s extra space, and even by just adding Amazon package lockers. When you face volatility calmly, creatively, and strategically, you can capitalize on opportunities that others might not have seen.
About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.
