Class B & C Housing Investments to Have Greatest Potential for High Returns in 2017-18

by Stacey Galvin consultant Investments in Class B & C housing provides relative stability for continued growth, regardless of the state of the volatile economy. Some of the key market indicators that have contributed to the growth of class B & C housings are discussed in this post.

Class A property investment losing profitability

Class B & C had edge over Class A property investment, during the recent economic uncertainty in the US. One of the reasons for this is that older properties such as Class B & C have proven themselves to be more or less recession-proof. Whereas newer housing properties such as Class A housing apartments can easily become a liability under the same economic conditions.

Class A housing apartments have high rents as they are located in luxury-grade buildings. Vacancies will inevitably increase in the class A apartments due to higher rents. The Net Operating Income (NOI) of Class A housing will remain low throughout the USA if vacancies are high.

The national vacancy rate (which takes into account all classes of apartments) rose to 4.3% in the first quarter of 2017. This rate takes into account the classes of apartments such as Class A, Class B, and Class C. But, the vacancy rate of class B and class C was as low as 1.7% in the first quarter of 2017. Lower vacancy rate means the high return on investment for the investors when they invest in class B and class C properties in the USA.

Class A properties are considered to be less profitable across the board, due to the sudden oversupply of luxury apartments, as the construction of Class A apartments is at the peak of a seven-year high. By making small property investments, Class B and C properties provide the investors opportunities to enjoy a significant lift in the net operating income.

Millennials entering the market by the millions

More and more millennials are holding off on purchasing the houses and turning to apartments, due to high student loan debt and stagnant wages. In addition to this, many millennials in the USA prefer to pay for the experiences over buying homes and consumer goods. According to event technology platform Eventbrite, more than 78% of millennials choose to spend money on travel or other events over other purchases.

According to Yardi Matrix, the number of millennials who will reach the prime renting ages of 20 to 34 will surpass 70 million within the next seven years, thus making it the target demographic for multifamily real estate properties.

Foreign investors make their own plays on the U.S. multifamily real estate

Foreign investors poured a record 90 billion dollars into the US commercial assets in 2015, according to an analysis by the Real Capital Analytics. Out of the $90 billion, foreign investors invested $19.6 billion in the apartment and other residential properties. It is important to understand that more and more foreign investors are seeing a huge potential in the US multifamily housing market.

More foreign investors are seeing this potential in the U.S. multifamily housing market. They invested a record $5.1 billion through June 2016 in the apartment and other residential properties. Foreign investors averaged a mere $ 5.4 billion in multifamily products annually, over the course of the previous decade.

Most of the foreign investment comes out of China, as well as Canada and Mexico. We’ve begun seeing an influx of investors from the Middle East and South Africa. Most of the foreign investors are pouring money into the multifamily properties.

The reality is that the combination of the potentially unstable economies abroad and a pro-deregulation President have made the current real estate market in the US attractive to the foreign investors.

The Bottom Line

Investments in Class B and Class C multifamily housing is on the rise throughout the US. The rising cost of class A properties, an oversupply of Class A properties and a drop in the demand of class A residential properties are some of the factors that have contributed to the rise in Class B & C multifamily housing investments throughout the USA.

This update is provided to you by Park West Capital. With over a decade experience specializing in real estate financing and commercial lending opportunities. We have assisted numerous clients with growing their real estate portfolios and providing the funding resources. We firmly believe in accountability, excellence, integrity, entrepreneurship, and teamwork. Contact us at 866-289-9607 to learn more about how we can professionally assist you with your investing needs or fill out our hard money loan application and we’ll get in touch with you.

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Created on Aug 31st 2017 08:20. Viewed 734 times.

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