Trends Shaping Multi-Family 1031 Investments
December 19, 2016
As a platform containing dozens of 1031 investments, we have certainly noticed a rise in the quality and quantity of commercial multi-family 1031 investments. What are some of the drivers, and what does it mean to your multi-family investment portfolio? We’ll explain a little in this post.
Changing expectations: student housing
We’ve seen the rate of students opting to live in off campus student housing rise over the last 10 years. It is certainly reflected by the number of open and closed multi-family 1031 investments focused specifically on developing or acquiring student housing properties.
These off-campus apartments offer amenities and luxuries the dorm room might not provide – for example, valet trash pickup, club house complete with gym, flat screen TVs or a swimming pool. As those students graduate, their expectations for that first home out of college are high.
The millennial effect
Last year, the U.S. Census Bureau named the Millennial generation, defined as those ages 18-34, the nation’s largest living generation1. This is a generation in mountains of student debt not wanting add to that with a mortgage. They want the amenities provided for them in college along with the flexibility a lease gives them.
Millennials are expected to have 7-8 jobs throughout their career. The average stay at a job is two to three years, and studies indicate that they are likely to stay at the same multi-family complex for that duration of time. This increases the standard lease of 12 months for most multi-family residents to a range of 16 to 18 months for millennial residents. Extended lease terms may significantly impact the viability and outcomes of a multi-family 1031 investment.
Baby boomers downsizing
Millennials aren’t the only ones joining the multi-family trend. Baby boomers are looking to downsize without giving up luxuries of their homes. Granite counter tops, hardwood floors and the flexibility without the responsibility of home-ownership. With a longer rental period, the cost to the owner is decreasing. Maintenance isn’t coming in every 6 to 12 months for upgrades, new floors, counter tops and fixture changes. The multi-family market starts with quality student housing that sets a higher expectation for future renters. The need to constantly gain the competitive edge is evident and renters are looking for the best amenities.
Related post: Identifying a Property for a 1031 Exchange
Due diligence tips
When looking at a multi-family 1031 investment, look to see if the capital expenditures will justify a rent raise. Where are the owner/investment sponsor investing? Class A apartments might mean luxury but Class B adds balance to the portfolio. Take a look at the metropolitan areas to see if job growth has occurred.
1031 RPS has a wide selection multi-family and student housing investments. Sign up for a free account to view our current inventory.
If you would like to speak to someone to discuss your personal needs and portfolio, you can also give us a call at (844) 4RPS – 1031.
Please note: 1031RPS.com and its associated personnel are not tax professionals, and they recommend investors consult with their tax advisor to ensure their 1031 Exchange is within the IRS guidelines established.