Multifamily Trends

How will a new emerging multifamily housing trend impact the Massachusetts real estate market and local investors?

There is a new multifamily apartment building trend evolving in the Northeast. It has the potential to delight those involved with increased income and returns, while it could be seriously upsetting for those that aren’t. So what’s going on? How can you benefit, and why won’t you be loved by everyone for doing it?

What we’ve been seeing is an increase in the construction of modular apartment buildings in the Northeast. Similar to manufactured or pre-fab single family housing these units are factory built offsite, shipped and then set up where desired like putting together a large Lego project.

The advantages for developers and commercial real estate investors are pretty obvious. It offers the ability to use lower cost material and labor and then reap top end rents in areas around major metros like Boston.

This can offer significant spreads and cash flow for real estate investors. It can help create jobs and boost economies where manufacturing is happening and there may be fewer alternative opportunities. It even provides highly appealing affordable housing to lower income residents which can go a long way to solving issues for local municipalities.

Of course, as with any new trend there can be potential negatives that come along with the positives. Some of the cons for areas getting these new modular apartment buildings could include less work and tax revenue than would be generated if traditional multifamily construction was being used for development.

It’s a neat and innovative idea. However, all of the pros and cons should be weighed carefully before commercial real estate investors jump on the bandwagon. It’s also essential to be precise with the real math; for example; weighing transportation costs and environmental impact as well as the true profitability of embracing new construction versus existing opportunities.

Certainly there are still opportunities in distressed multifamily leasing in areas like Worcester County, Massachusetts.

One of the most important factors to consider when contemplating becoming a developer versus sticking to acquiring existing rental property stock has to be cash flow. Tying money up in construction can mean a long wait before any money starts walking back in the door. In contrast currently rented properties can deliver returns from day one. One of the keys to success for any modular apartment landlords will be lining up tenants early. So check back in next week as we offer tips on creating and capitalizing on a tenant waiting list…