Positive Net Migration to the Sunbelt Driving Up Apartment Demand
Multifamily real estate investors can find strategic advantages when they put on a demographer's hat. Population trends, specifically net migration to a state or metropolitan region, offer clues that can unlock value. Net migration refers to the total gain or loss a state realizes after adding and subtracting people who moved in and those who moved out. A location with a positive net migration has a higher chance of increased housing demand. 
Greater demand for a product, in this case apartments, translates into better returns on investment. For example, the Dallas Morning News reported on July 6, that out-of-state migrants to the Dallas Fort Worth area produced a surge in apartment leasing in the second quarter. Demand caused rents to rise by 7% in the DFW market compared to the year before. The article quoted the RealPage chief economist as saying that upward pressure on rent for luxury apartments created room for middle-market properties to raise their rents as well. 
The DFW market example highlights the growing markets in Sunbelt states, like Texas. Other warm states with strong economies are experiencing notable increases in population due to people shifting their lives away from major population centers on the coasts.
Why Do People Move?
Before digging deeper into the importance of net migration when evaluating a multifamily real estate deal, the reasons that people move bear consideration. Jobs are an obvious example. Greener pastures in thriving cities and suburbs will motivate recent graduates and those dissatisfied with their employment situation to move.
Housing affordability attracts migrants. People living in high cost of living cities, such as Seattle or Los Angeles, may choose to leave high rents behind in favor of less costly housing in Texas or Arizona.
Lifestyle factors play a role in some migration. Retirees may want a warmer place to live, or young professionals may want access to suburban schools when they wish to start families.
Lower taxes contribute somewhat to migration. This could be particularly true for people with higher incomes. Additionally, high-earners who run companies may relocate their headquarters to connect with tax advantages. 
Current Population Trends
Public and private sources supply data about migration that investors can analyze for greater insights about the best places to buy property. The U.S. Census, U.S. Post Office, Bureau of Labor Statistics, and even an annual survey by the U-Haul company about one-way truck rentals build a picture about who is moving where.
An April 2020 report from CBRE Econometric Advisors cited postal data that confirmed that the Sunbelt, specifically cities in the Southeast, continued to enjoy positive net migration. CBRA also noted that renters who moved tended to remain renters where they landed. 
The publication GlobeSt confirmed that mutifamily investors had certainly taken notice of migration to non-major metropolitan areas in the Sunbelt. In 2020, almost 70,000 residents of California moved to Arizona, Nevada, Utah, and Idaho where the cost of living is lower. As a result, emerging Sunbelt markets received record-setting investments in multifamily real estate. Non-major metros received 75.8% of apartment investments in 2020. 
How Strong Net Migration Equals Profits
Strong net migration is a good indicator that demand will be high for apartments. This demand improves occupancy and quickly enables rent increases. Good occupancy and rent growth could also make the real estate appreciate rapidly.
  https://www.tacticares.com/blog-feed/real-estate-investment-state-net-migration
Although 2021 is not shaping up to break records for investors, multifamily housing broadly remains a source of stable returns. Many opportunities remain considering the persistently high demand for rental housing and low interest rates. Vacancy rates are poised to head downward, and rent growth will come out of negative territory. Multifamily real estate inventory will remain behind demand. Demographic shifts on the horizon indicate stronger market growth in the suburbs.
Vacancy Rates Peaking This Year
According to Fannie Mae's Multifamily Economic and Market Commentary from January 2021, vacancy rates should peak mid-year. Market analysts estimate that the national vacancy rate will hit 6.5% and then gradually improve heading into 2022. 
Higher vacancy rates clustered among Class A real estate as young professional left urban areas during the pandemic. In contrast, Class B and C housing vacancies remained stable due to their greater affordability. 
Slow Rent Growth
Multifamily real estate investors can expect minimal rent growth in the coming year. Rent growth dipped approximately 0.75% in 2020 compared to 2019. As 2021 progresses and society regains normalcy, rents could recover slightly by the end of year. Fannie Mae predicts rent growth to either break the zero mark or nudge upward by 0.5%. 
Within urban markets, Fitch Ratings anticipates that rents will recover and grow within two years after the shock of the pandemic. At this point, suburban markets, especially in the Sun Belt, continue to outperform urban multifamily real estate. 
Multifamily Real Estate Inventory
Builders will attempt to meet the demand for multifamily real estate in 2021. Surveys by the National Apartment Association indicate that roughly 300,000 to 400,000 new units are planned for this year. 
However, new construction will likely fail to eliminate the rental unit supply problem. Revenue dips and higher expenses for building owners in 2020 have depressed somewhat the rush to build new units.  Additionally, supply and labor shortages continue to force builders to delay new construction. 
From the perspective of investors, more multifamily properties owned by individuals may come on the market in increasing numbers this year. Data provided by CoStar show that individuals, often called "mom and pop landlords" own over one-third of affordable rentals. Their modest resources have increased their financial strain during the pandemic as their tenants became delinquent on rent in higher numbers. As of October 2020, the National Leased Housing Association reported that 89% of individual landlords had suffered revenue declines.  Such an environment could produce more motivated sellers than usual and thus yield additional opportunities for investors.
The strongest markets for multifamily real estate investors appear to be shifting to the suburbs. This is mostly due to Millennials entering midlife, which typically involves a shift from urban living to suburban living as people desire more living space and start families.  Although many people in that midlife age group will desire single-family homes, low supply could realistically keep them renting apartments.
The potential does exist right now that immigration may increase. Immigrants have long been prone to renting. The Joint Center for Housing Studies reported that 83% of recent immigrants rent. 
Recovery will largely define the coming year for multifamily real estate. Although property values remained strong through the pandemic, rent growth will be slow for a while. Investors should also keep an eye on the developing demand in suburban areas.
   https://www.fanniemae.com/media/37966/display
  https://www.cbre.us/research-and-reports/2021-US-Real-Estate-Market-Outlook-Multifamily
    https://www.naahq.org/news-publications/2021-apartment-housing-outlook
Real estate professionals and investors classify multifamily properties according to their potential investment returns and associated risk. The classes are A, B, C, and D with A being the best rating and D being the lowest. Many factors, including location, age and condition of building, and local market rental rates, shape the class assigned to a particular property. 
Although A and B classes demand higher prices and rents, C and D classes do not necessarily equal undesirable investments. By and large, the asset classes communicate what to expect and what will be necessary to succeed. These classes also mean different things in different markets due to the huge influence of location on revenue and real estate value. 
Classifying multifamily real estate requires assessing a combination of hard numbers that can be documented and less certain factors about the future, like appreciation.
Frequently used variables are:
Desirability of location
Residents' income levels and credit worthiness
Local crime rates 
Other issues can influence classification, but the classes mostly adhere to the following guidelines.
The primary features of Class A real estate are:
Building is 15 or fewer years old.
Units have great amenities.
Tenants have high incomes.
Location appeals to high-earners.
Building is professionally managed.
Rent is high.
Vacancies are low.
No major repairs or upgrades needed any time soon. 
These properties come with high price tags but should appreciate and present little risk to investors.
In general, these are the characteristics of Class B properties:
Buildings may be up to 20 years old.
Tenants have moderate income.
Rent is at a medium level.
Buildings are in good condition but maintenance and upgrades are on the horizon.
Overall, investors view the risk as higher with Class B buildings but not excessive. The opportunity to add value by investing in renovations is often present.  Lower property prices make them accessible to more investors as well.
At this point, the shine is off a building because:
Building age is beyond 20 years.
Renovations are obviously needed.
Location may not demand high rents.
Tenants have lower incomes. 
Class C buildings have lower prices. The investment risk is higher but revenue generation could be good. 
Although investors can and do earn revenue from Class D properties, they present many challenges, including:
Building age is above 30 years.
Crime impacts location.
Tenants have low incomes and low creditworthiness.
Vacancies are high.
Rent collection can be a recurring battle.
Building condition is poor. 
Acquisition costs are low and can immediately provide equity to an owner. The investor may also avoid the cost of major renovations in an area where low-income tenants cannot pay for better apartments anyway. Despite these positive attributes, the investment presents higher risk. 
Adding Value Through Repositioning
To reposition a property, an investor increases the Net Operating Income either through collecting more revenue, lowering operating expenses, or both. When successful, a higher NOI results in greater appreciation. 
Any class of property could have the potential for repositioning with the right market forces and property characteristics. Even a Class C or D property could rise to a Class B rating if the building is in a neighborhood that has suddenly become desirable to higher income tenants.
As with all things real estate, success comes down to understanding local markets and spotting properties that can be repositioned successfully.
   https://www.realtymogul.com/knowledge-center/article/what-is-class-a-class-b-or-class-c-property
  https://retipster.com/class-a-b-c-d-properties-explained/#
  https://www.biggerpockets.com/blog/2016-07-06-multifamily-real-estate-value#multifamily-valuation-how-to-calculate-value-in-multifamily-investing
Real estate investing plays a critical role in portfolio diversification far beyond simply being a different type of asset. Investors can acquire a real estate company's publicly traded stock or invest in privately held real estate either directly or passively. A private investment in real estate, like multifamily housing, will be largely insulated from the forces that influence public stock markets. As a result, private assets are particularly well suited to reducing investment risk through diversification.
Public Markets Offer Limited Diversification
Buying publicly traded stocks in different types of industries and companies might look like diversification. However, diversity means more than investing in different things within a single market, and the public arena forms only part of the investment universe. For example, the managing director of investment consulting at Ascent Private Capital Management at U.S. Bank called the S&P 500 a single egg basket in a March 2021 interview for Barrons. 
Furthermore, the current state of public securities in the United States has actually become less diverse. The New York Times reported in 2018 that the number of publicly traded companies on U.S. stock exchanges had fallen by 25% since 1976. 
Declining numbers of publicly traded companies mean that the remaining companies have consolidated their influence over markets. Within the S&P 500, the tech giants Alphabet, Amazon, Apple, Facebook, and Microsoft comprise almost 25% of the whole index.  An increasingly consolidated environment promotes asset correlation.
The Threat of Asset Correlation
Asset correlation describes the process of how stocks or assets behave in relation to each other. Assets moving up or down together within a public stock market demonstrate positive correlation. Negative correlation occurs when one asset goes up when another goes down. Asset activities that show no relation to each other are non-correlated. 
According to Modern Portfolio Theory, an approach recognized with the Nobel Prize in Economics in 1990, risk goes down when investments are diversified among non-correlated assets. The absence of correlation among investments can potentially lead to higher returns over the long term. 
Private Real Estate Has Low Correlation With Public Markets
Returns from private real estate investments consistently display little to no correlation with public securities and bonds. For this reason, they have a strong potential to increase risk-adjusted returns for investors previously invested mainly in public stocks and bonds. 
Private Real Estate As an Inflation Hedge
Real estate can demand value increases in relation to inflation. Because rent and property value have a greater ability to rise in relation to inflation compared to other assets, real estate can help a portfolio keep pace with inflation. 
Multifamily properties keep up with inflation as new tenants sign new leases or existing tenants renew leases at elevated rent levels. This gradual process protects investors' revenue over the long term. Additionally, inflation generally adds to the appreciation of an asset should it eventually go on the market at a higher price. 
Institutional Investors Seek Alternative Assets
Passive real estate investing offers individuals a way to replicate the alternative asset diversification strategy leaned on by institutional investors. Investors at that level embrace private assets as a way to limit exposure to public market volatility. According to a 2020 survey of institutional investors by the Natixis Center for Investor Insight, the majority of respondents turned to alternative assets to mitigate public asset fluctuations caused by the pandemic. Additionally, 71% of institutional investors were attracted to the higher returns possible with private assets. 
Passive investment in multifamily real estate connects people with the advantages of private equity while shielding them from the day-to-day work of property development and management. After completing the investment transaction, the investor gains quarterly cash disbursements from rent collection and the eventual sale of the appreciated property.
  https://www.barrons.com/articles/future-returns-investing-beyond-the-s-p-500-01617126920
  https://www.thebalance.com/what-is-asset-correlation-2894312
  https://www.bankofsingapore.com/research/the-role-of-real-estate-in-a-diversified-portfolio.html
Owning real estate, collecting rent, and someday selling property at a profit represent a time-tested process for building wealth. The money does not come without effort though. Multi-family properties require management and maintenance. Market expertise is essential for selecting good apartment building investments to begin with.
People whose careers occupy their precious time can sidestep this workload through passive real estate investing. This route connects passive investors with many benefits. They experience no increased demands on their time, and the profits may often be treated in a tax advantaged way. Additionally, real estate could deliver greater returns than the stock market over the long term.
Work Done by Real Estate Professionals
Passive real estate investing places the wealth-building power of multi-family real estate ownership in investors' hands without burdening them large time commitments. A passive real estate investor partners with an organization run by real estate professionals. The passive investor taps into a team of people who know how to identify and acquire promising properties. Additionally, support systems like property managers and accountants are already in place. Passive investors do not have to spend time building this support network. They simply plug into an existing program focused on multi-family housing investments. 
This arrangement wipes time-consuming tasks off an investor's plate. The experts attend to day-to-day operations and long-term strategy development while the passive investors collect their share of profits from rent and sales.  Busy professionals in particular benefit from this system. They gain a viable way to put their money to work for them and enjoy a steady income stream from rent collection.
Tax Advantages for Passive Income
Any individual's income and investment portfolio affects their tax filings, but real estate investing generally qualifies for beneficial tax treatment. Overall, the U.S. tax code seeks to promote investments in housing. Investors often have opportunities to write off part of a property's value due to depreciation. In some situations, the process of bonus depreciation and cost segregation enables a tax break for future depreciation. 
Apartment investors in particular have access to tax benefits on their passive income. The tax code allows them to delay taxes at certain times or in some circumstances avoid some taxation completely. This advantage applies specifically to passive income generated for passive investors in multi-family real estate. 
The Internal Revenue Service defines passive income as money earned by people who are not "materially involved" in the running of the enterprise that paid them. A passive investor in an apartment building will essentially be "hands off" and meet the IRS definition of being a silent partner or investor in a real estate operation run by full-time professionals. 
Excellent Alternative to the Stock Market
Financial advisors have long recommended real estate as a stable method for diversifying assets beyond stock investments. Although real estate is not as immediately liquid as a stock that can be traded the next business day, it possesses advantages over stocks. Chief among these advantages is a strong potential for producing higher returns than the stock market over the long term.
An analysis of returns dating back to 1996 that compared the S&P 500 to the Vanguard Real Estate ETF revealed a substantial difference. At the 20-year comparison point, the real estate fund had returns of 619.7% versus returns of 213.1% for the S&P 500.  In this analysis, the S&P 500 and the Vanguard fund served as reasonable proxies for stocks versus real estate performance.
At the end of the day, passively investing in apartments leaves investors with an ownership portion of a real asset. Multi-family housing is not vulnerable to paradigm-shifting technologies that can make a previously successful public company flounder, such as happened to BlackBerry and famously Kodak film. Stock investments have a greater risk of experiencing hits from unanticipated market changes. Real estate, particularly housing, does not face the chance of being replaced in the market by something else.
  https://www.biggerpockets.com/member-blogs/9266/90212-benefits-of-passive-real-estate-investing
  https://cepmultifamily.com/passive-income-multifamily-investments/
End Of Article
Investors anticipate steady demand for multifamily housing
In an environment filled with uncertainty, multifamily housing continues to attract real estate investors. Apartment buildings possess characteristics that insulate them from the societal shifts threatening the office and retail real estate sectors. Remote workforce trends and online shopping do not change the fact that people need places to live.
Add in a low supply of largely unaffordable single-family homes, and investors increasingly view multifamily housing as a viable opportunity for healthy returns. In fact, those who control large amounts of capital have not been shy about investing in apartments.
Financing remains available for housing
Housing shortages throughout the country have made lenders and governments receptive to new housing projects or renovations of existing properties. A look at recent multifamily deals illustrates the money that is on the table. In November 2020, Bain Capital Real Estate and Magnolia Capital announced their intention to invest over $900 million in multifamily properties across the United States.  This joint venture identified apartment complexes catering to middle-income residents as a particular area of opportunity.
The year closed out with other multifamily deals from large players. For example, CapitaLand out of Singapore and an Austin, Texas, organization plan a $300 million joint venture for the acquisition and development of multifamily properties in both the Southeast and Southwest. Additionally, the private equity real estate company Turner Impact Capital has committed $350 million to buying nearly 10,000 units. 
Inflation expected to raise CRE values
It is no secret that the government has been injecting large amounts of money into the economy as a stimulus to counter pandemic economic disruptions. Fears of inflation naturally follow such acts, but this time economists predict that inflation will affect commercial real estate and other assets more than consumer goods.
One-time Wharton professor Peter Linneman, speaking in a Walker & Dunlop Walker Webcast, explained that large portions of stimulus funds have gone to huge entities like JPMorgan and Goldman Sachs, who then invest in assets. They make moves in the hundreds of millions of dollars, which results in lifting the value of assets due to more money being in the system. 
Affordability issues keep people in multifamily housing
Multifamily housing investments rely on renters, and economic realities appear to almost guarantee a strong supply of renters for years to come. Although many people would like to buy a home, they end up renting because their incomes cannot support a home purchase. The Washington Post reported that home prices nationwide rose a minimum of 10% in the fourth quarter of 2020. According to data from Attom Data Solutions, home affordability declined across multiple markets in 2020 compared to the same period in 2019. 
Multifamily properties showed strong performance in 2020
The past does not always equal the future, but any sector that did well in turbulent 2020 possesses resilient qualities. The head of investment sales at the commercial mortgage servicer Berkadia said that multifamily properties produced $122 billion in transactions in 2020. This made it the number one commercial real estate sector. Industrial property ranked second at a considerably lower $86 billion in transactions. 
Positive long-term forecast
The traditional view that multifamily housing can provide consistent returns remains true in a changing world. Private capital has shown a clear interest in investing in apartments due to a large segment of the population being priced out of single family homes. Additionally, the possibility that inflation could swell the value of assets provides investors with a reason to act soon.
Overall, the basic function of multifamily housing removes it from concerns that can trouble other forms of commercial real estate. New technologies can disrupt the profitability of industrial tenants. Changing consumer habits and rising overhead costs continue to plague retail operators. However, at the end of the day, many people will continue to live in apartments.
  https://www.multihousingnews.com/post/the-top-multifamily-stories-of-2020/