4 ways to find your investment niche in multifamily real estate

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Multifamily real estate is a big sprawling market that offers boundless opportunity. It encompasses far more than the urban high-rise building, the suburban apartment complex or the institutional development. Years ago, I began my career in multifamily housing by buying a fairly standard, six-flat walk-up in Chicago, one with a common center entrance and three units on each side. How multifamily has changed since then.

Today’s multifamily housing operates at a much larger scale, with institutional investors and private equity building and owning more of the market. Smaller investors can struggle to enter and gain a foothold in this marketplace. That’s where niche multifamily investing becomes meaningful.

Niche multifamily investors identify a unique demographic, location, or need and target renters with the right product or service. They don’t need to operate a 350-unit property to drive rent growth and revenue. Operators who find the right niche can build a sustainable business starting with just a few units. And niche investments abound. Here are four multifamily real estate niche opportunities we find intriguing.

Single-family rentals

In a housing market challenged by high interest rates and construction costs, single-family rentals have become popular options, especially for young families. They offer the benefits of a stand-alone home without the need for loan approval or a savings-draining down payment.

In 2023, we purchased an 87-home single-family rental community in West Knoxville, Tennessee. The Residences and Devanshire feature three-bedroom, two-bath rental homes that have been popular for nearly a decade. Since purchasing the property, we have cultivated 100 percent occupancy and a sizable unit waitlist.

The single-family market should offer long-term opportunities even when the buying market returns. Attom, a real estate data company, projects three-bedroom rental yields at 7.55 percent this year, with some regional yields topping 14 percent. Some large metropolitan areas, such as Detroit, Pittsburgh, Cleveland and Chicago, yield 10-percent returns.

Single-family rentals are popular in high-growth job regions and places where home sales remain static despite need. This multifamily niche drives consistently high occupancy and is an attractive way to rent.

The local markets

Economic trends in inflation, employment and wage growth impact multifamily housing from a national perspective. Still, real estate was, is and always will be local. A trend that impacts multifamily real estate nationally might go unseen locally. 

New investors can carve their niches by finding a submarket niche. I began my career riding a bike through Chicago neighborhoods to gauge their occupancy levels, business offerings, dining and nightlife scenes, and general vibrancy. A Starbucks often signaled a growing neighborhood, which made me delve deeper into the local data.

Sometimes, institutional investors prioritize data exclusively and fail to understand the neighborhoods they’re targeting. They might scan headlines about urban concerns, notably crime, and defer buying. That’s where local investors can outflank equity. While some institutions pour money into oversaturated U.S. markets, smaller investors can target locations where new multifamily construction has lagged. 

For instance, a recent JP Morgan Chase report highlighted the Bronx in New York City, Chicago’s Lincoln Park, and Orange County, California, as high-performers. Get outside, multifamily investors, and embed yourselves in a neighborhood.

Student housing

Student housing has remained among the “most resilient asset types in multifamily” even during the past four years, according to Multi-Housing News. January pre-leasing rates for the fall 2024 semester hit a record 49 percent, RealPage reported, meaning that inventory for the upcoming school year was gone before the last school year had ended.

Some universities, such as Tennessee, Purdue and Arkansas, reported pre-lease rates at 80 percent or higher. Further, RealPage found that rents were up 6.7 percent on average and 8.7 percent for units more than a mile from campus. Even as more people study online, campus housing, particularly at large universities outside urban areas, is a consistent investment.

However, student housing requires a unique management approach that might stress some investors. The lease and move-in schedules are strict (usually centered in August) and require diligent scheduling. Miss a leasing opportunity, and that apartment might be vacant for a year. Students also have different security needs, communication preferences and property standards. Multifamily operators willing to meet students’ priorities can find long-term success.

Senior renters

One rental demographic increased by 43 percent in the 2010s and continues to grow: renters in their 60s. Baby boomers with about $18 trillion in home equity, empty nests, and grandchildren to visit often are choosing to sell their homes and rent in desirable locations or near family. Moreover, some downsize to spaces with lower square footage, fewer stairs and less upkeep. But a market gap exists here.

The U.S. Census projects that 73.1 million Americans will be 65 or older by 2030. By 2060, that number will be 94.7 million. And the Urban Land Institute projects a 74-percent increase in senior renter households by 2040. This rental cohort demands a range of specific needs and services, from one-floor units to high-end amenities and long-term needs. With the right approach, multifamily operators can command premium rents in this market.

JP Morgan Chase highlighted some amenities to draw senior renters, from upgraded lighting to smooth flooring surfaces to automated doors. Properties also might benefit from flexible-use spaces that can be adapted to a renter’s changing physical needs over time. 

The need for multifamily housing will continue to grow across all demographics. The National Apartment Association and National Multifamily Housing Council suggest that we’ll require 4.6 million new units by 2030 to meet demand. People need places to live in different areas, at various price points and at multiple stages of their lives. 

Even in a big marketplace, small points matter. By identifying a niche market and connecting with renters there, multifamily investors can build a successful business while providing renters with what they seek most: a home.

Michael H. Zaransky is the founder and managing principal of MZ Capital Partners in Northbrook, Illinois. Founded in 2005, the company deals in multifamily properties.

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