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Multifamily Residential Property in OZ

Multifamily Residential Property in OZ

Multifamily is by far the most popular asset class in Opportunity Zone investing. In their recent report, accounting firm Novogradac estimated that of Qualified Opportunity Funds reporting their investment focus, 66.7% have some residential development and have raised $19.13 billion, which accounts for 78.4% of the equity total of their funds. What does that mean for a potential Opportunity Zone investor? If you are looking to invest with a Qualified Opportunity Fund, there is a really good chance that your money will do well in multifamily residential. 


Why is multifamily residential such an attractive asset class?

For at least the last decade, high construction costs and increasing demand have kept multifamily housing oversubscribed through much of the United States. The National Apartment & Multifamily Housing Council estimates that to keep up with demand, 4.6 million new housing units will need to be built by 2030. That means 325,000 new units per year. For reference, from 2012-2016 the average number of new units per year was only 240,000, so the need for building at an accelerated pace is clear. 

 

What's driving the demand? Large groups of Americans are priced out of the market. Single family home prices are increasing at a much faster rate than wages, contributing to the delay of many millennials' journey to home ownership. Millennials now rent for an average of 5-7 years before purchasing a home. Additionally, the massive baby boomer generation are becoming empty nesters and are choosing to downsize to smaller rental units in growing numbers. 39 million Americans now rent apartments, or about 1 in 8.


What are the financial benefits to multifamily residential investments?

Traditionally, multifamily housing has been one of the most stable and recession-proof real estate investments on the market. Financial institutions agree, and tend to make financing readily available and relatively easy to come by. With a nationwide housing shortage, vacancy rates trend low. 

 

For Qualified Opportunity Funds and investors, who need to hold their assets for a minimum of 10 years to reap the Opportunity Zone tax incentives, the financial benefits make multifamily housing particularly enticing. Low vacancy rates mean a steady stream of income can be expected from rent. There are also tax benefits beyond the Opportunity Zone program, as you can write off property management, maintenance, repair, insurance, etc. You can even take depreciation into account for the 10 or more years that the property must be held. 

 

Since multifamily residential property typically provides a steady income stream, if the potential sale price is not where investors would like it to be at the end of the 10 year hold, the revenue stream makes it easy enough to continue to hold the property until the market is favorable. 


Are all multifamily residential properties in Opportunity Zones automatically a good bet?

No, of course not. As with anything, you must vet your investment. Project location and proximity to transit, businesses and other geographical attractions should always play a role in the determination of what funds to participate in. 

 

Other factors to consider as potential drawbacks are the fact that the upfront cost is quite high for most multifamily properties simply because they are often large. Also, with the housing shortage, there is a lot of competition for prime real estate and deals from other investors and developers. However, the perks of Opportunity Zone investing can alleviate some of these potential drawbacks. 

How do I access institutional-quality multifamily real estate deals in Opportunity Zones?

OZ FundHub is here to connect to you hundreds of Qualified Opportunity Funds that are investing in multifamily or mixed use projects throughout the country. Utilize our fund finder or join an upcoming OZ FundHub Connect webinar to learn more and be connected to top Qualified Opportunity Funds today. 


 *Important Notice: OZ FundHub is not a licensed tax, accounting, or financial firm. All Information contained is for educational purposes only.*

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