Real estate investment has always been a game of strategy, diligence, and foresight. The multifamily sector is beautiful to many, given the potential for consistent rental income and the appreciation of property value. When determining where to invest, a critical decision arises: should one invest locally or spread their investments nationally?
Benefits of Investing Locally in Multifamily Real Estate
1. Familiarity with the market
The primary advantage of investing locally is a deep understanding of your market. A study by the National Association of Realtors underscored this, revealing that properties in familiar neighborhoods tend to appreciate faster than those in unfamiliar ones. Additionally, the Urban Land Institute found that investors who invest locally are more likely to make profitable deals, attesting to the importance of market familiarity.
2. On-site management and supervision
Proximity to your investment allows for more direct management. Whether you self-manage or use a property management team, local investments let you be physically present for inspections, emergencies, or tenant relations when needed. It’s worth noting that a study by the National Multifamily Housing Council showed properties with on-site management have both lower vacancy rates and higher rental income. Similarly, the American Property Management Association found such properties also incur lower maintenance costs.
3. Networking and local relationships
Investing locally often strengthens ties with local real estate professionals, from brokers to contractors. Such relationships can pave the way for better deals and faster issue resolutions. This is backed by studies from the National Association of Realtors and the Urban Land Institute, which found that solid local relationships lead to advantageous property deals and efficient issue resolution.
4. Lower initial costs
For newcomers, local multifamily investments can be more budget-friendly. A study by the National Association of Realtors highlighted that the average down payment for a multifamily property is 20%, with closing costs averaging around 3%. Travel expenses, market research, and costs associated with navigating a new area can be minimized or eliminated when investing close to home.
Benefits of Investing Nationally in Multifamily Real Estate
1. Diversification of assets
Spreading investments across multiple markets offers portfolio diversification. The National Association of Real Estate Investment Trusts indicates that the average annual return for a diversified portfolio of multifamily properties is 10%, compared to 7% for non-diversified ones.
2. Potential for higher returns
Different regions offer varying ROIs. National investment exposes you to markets with higher cap rates or more favorable growth potentials. For instance, the Urban Land Institute notes that while the average cap rate for multifamily properties in the U.S. is 5%, it’s slightly higher in California at 6%.
3. Access to larger markets and opportunities
National investments open doors to markets with better long-term growth and consistent rental income. The National Multifamily Housing Council lists New York City, Los Angeles, Chicago, San Francisco, Washington, D.C., Boston, Seattle, Miami, Denver, Dallas, and Phoenix among the top markets for multifamily real estate investment in the U.S.
4. Adaptability to market changes
Diverse real estate portfolios enable adaptability. If one market saturates, you can shift your attention to others showing promise.
Conclusion
The decision to invest locally or nationally in multifamily real estate is common. It’s anchored on an investor’s comfort, experience, risk appetite, and goals. Whether local or national, each strategy has unique merits, underscored by concrete data, making either route viable depending on individual preferences and aims.
