What ROI Investors Aim for on Multifamily and Mixed-Use Development Projects

By Lazer Sternhell, CEO — Cignature Realty

The number of permits for single-family homes and 2- to 4-unit homes are down for the first time in a decade, but multifamily developments are on the rise.  Renter-occupied housing units now constitutes 34.5% of the national housing stock, according to the latest statistics by Point2.  As some single-family builders venture into multifamily development, here are some things to consider.

Real estate investing can offer a wealth of opportunities for those with a keen analytical mind and an entrepreneurial spirit, but gaining the necessary market knowledge and investment skills can be demanding and come at a high cost. Despite this, the potential returns on investment can be substantial for those who succeed.

The most successful real estate investors have a vision beyond short-term market gains. They understand the fundamental rule that quick market gains may not lead to sustained success. Instead, they rely on their strategic efforts, soft skills, and experience to help them navigate the complex world of real estate investment. 

These skills aid in networking, reading people, and selling effectively, and — when coupled with cost analysis — they make for a masterful player in investing’s game of chess. Resilience and self-motivation are also essential for success in real estate investment. The best investors can protect their queen and win the game, even if they lose pawns in the short term. 

It’s also vital to understand the concept of return on investment (ROI), which, according to Bankrate, is the identified “profit earned on a real estate investment after deducting all associated costs.” Understanding this principle in real estate investing is an entirely different game from the stock market. 

Mastering the game

While the potential rewards of real estate investment can be substantial, it’s crucial to recognize that success doesn’t come quickly or easily. Therefore, prospective investors should be prepared to invest time, effort, and resources into gaining the necessary knowledge and skills to succeed.

When making an investment decision, potential real estate investors should always consider the expected ROI and potential impact of economic, legislative, and political factors. According to economists at the National Association of REALTORS® (NAR) annual Real Estate Forecast Summit, the remaining quarters of this year will see a return to normalcy. However, housing inventory is expected to remain tight due to fewer homeowners willing to sell at historic lows, even as interest rates climb steadily. Nevertheless, despite the turmoil of recent years, investors can still find profitable opportunities in multifamily and mixed-use development projects.

Multifamily projects, which consist of multiple residential units like apartments or condominiums, offer a stable source of income and long-term appreciation potential, as well as tax benefits and greater control over the investment. On the other hand, mixed-use development projects combine different types of properties, like commercial and residential spaces. 

While these projects require more capital than other real estate investments, they offer the potential to create synergies between different properties and increase the value of the entire development. Still, investors must first conduct thorough market research and analysis to ensure the investment is worth the additional cost.

Factors such as location, market demand, construction costs, and rental income all impact the expected ROI. For example, a robust local economy, low vacancy rates, and high demand for rental properties are key features to look for in a location. Additionally, proximity to transportation, schools, and other amenities that tenants value should be considered. 

Location, location, location

Location is one of the most critical factors when investing in real estate, as it affects the demand for rental properties, the value of the property, and the potential for appreciation. Investors should search for locations with strong potential for long-term financial and social growth, such as areas with a strong local economy, low vacancy rates, and high demand for rental properties. Proximity to transportation, schools, and other amenities that tenants value is also essential.

Real estate investments offer tangible assets that provide a more stable source of income and appreciation potential. In contrast, stocks are not tangible assets, and their value can be volatile and subject to market fluctuations.

Another advantage of real estate investments is that investors have greater control over their investment, as they can make decisions about the property’s management and improvements. For example, they can hire property managers, renovate, or raise rent prices reasonably to increase their income.

Furthermore, real estate investments can provide tax advantages, such as depreciation deductions and the ability to defer capital gains taxes through 1031 exchanges. For example, depreciation deductions can be taken each year, which allows investors to deduct a portion of the property’s value from their taxable income. Additionally, through a 1031 exchange, investors can sell a property, use the proceeds to buy another property, and defer paying taxes on any gains from the sale. Thus, they can keep more profits and reinvest them into another property.

Real estate investments offer various benefits, including stable income, appreciation potential, greater control, and tax advantages. However, investors must carefully consider their investment goals, research, and seek professional advice before investing in any real estate opportunity.

— Lazer Sternhell grew up in a family of commercial real estate owners, which sparked his interest in the potential of the industry at an early age. He gained invaluable knowledge while working for his family’s business in the mid-1990s, where he also cultivated his natural talent for sales. After establishing and running successful businesses in other industries, Lazer was inspired to enter the world of real estate from a brokerage standpoint, using his seasoned skills to benefit his clients. He was honored with CoStar Power Broker status for his accomplishments and contributions. Lazer currently resides in Rockland County, NY, with his wife and five sons.

Life On The Estate

Life On The Site

Life On The Set

Life With A Twist

About The Savvy List