Simply stated - people will always need a place to live. Land is scarce in many cities and the population continues to grow as children move out to form new households, in-migration continues in large numbers and aging baby boomers live longer.

Growing Demand

The principles of supply and demand have created the perfect opportunity for multi-family investing. The overheated housing market, credit crunch and downturn in the economy have caused a virtual halt in new construction. This trend is likely to continue until demand and values exceed the cost of new construction, which, in the interim will significantly diminish supply.

Meanwhile, demand is already growing. The prime rental age for multi-family property is 18 to 34 years old. Generation Y (also called Milleniums and Echo Boomers), the genetic offspring and demographic echo of the baby boomers, are the largest generation of young people since the 1960s. They are beginning to come of rental age representing nearly one third of the U.S. population. For multi-family owners, the number of people turning 18 each year is a significant demographic. At this age, young people are starting their first jobs or going off to college. As a result, they drive up demand for student housing and Class B and C class assets, generally sharing with roommates. Over four million Americans will be turning 18 annually through 2020. (Multi-Housing News).

There is a also a percentage of the population over age 34 that rents during transitional periods, while others are perpetual renters having no means or desire for homeownership, a percentage that is increasing as a result the foreclosure crisis. And in addition aging Baby Boomers downsizing to rental units, the in migration into the United States - mostly renters - is estimated to grow 10 million over the next ten years. This will create very strong demand for multi-family housing.

Multi-Family vs. Single Family

Multi-family investing achieves economies of scale over single family real estate. Having more units under one roof lowers the cost per door and increases the efficiency of management. And if a unit is vacant, the loss only represents a small fraction of the total income.

Additionally, multi-family values are based on the income approach - the business operation of the multi-family asset, not what the property down the street sold in the last 60 to 90 days. The value of a multi-family asset is in the income stream. By maximizing rents and reducing expenses these assets can appreciation quickly over time.

Multi-family vs. Stocks

There are many reasons why real estate outperforms the stock market. Investors have more control over their real estate investments than they do with large conglomerates and publicly traded stocks. Additionally, real estate is a commodity in demand that has proven to exponentially rise in value over time, providing a more stable investment and earning higher returns than other types of investments.

Multi-family vs. Other Commercial Investments

Of all the commercial asset types, multi-family has proven to be the most stable. During strong economic times all types of commercial real estate do well, but in down times, as stores and businesses slow down or close their doors, retail, office, warehouse and industrial lose major tenants and can sometimes sit completely vacant. Multi-family owners can be more flexible and react quickly to changing market conditions by making concessions to potential renters in order to maintain occupancy levels.

In many down markets, multi-family performs better than other commercial sectors because people still need a place to live. As housing foreclosures increase, renters turn to the multi-family market as rents remain affordable and renters don't have to make a long-term commitment. And many people who would like to buy a home choose to wait, deciding it's better to keep renting rather than taking on the financial burden of a monthly mortgage payment.

In most markets, multi-family has proven its resilience during this recession. Multi-family fundamentals have been the most stable of any asset sector throughout the downturn. Multi-family is going to remain the strongest sector during the next few years. (Marcus & Millichap).