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Why Mid-Tier Properties Are the Future


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Given the declining share of homeowners and a pronounced decrease in buyers of property, it's clear that the future will belong to renters. A presentation by Michael Zaransky.

Published in: Real Estate
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Why Mid-Tier Properties Are the Future

  1. 1. Why Mid-tier Properties Are the Future B Y M I C H A E L Z A R A N S K Y
  2. 2. During the second quarter of 2016, the homeownership rate in America fell to 62.9% —the lowest it’s been since 1965. The reasons for this decline include a mix of factors, including the lingering effects of the 2008 financial crisis, strict lending regulations, and expensive real estate costs in major cities. Other experts also cite things like high student loan debt and delays in life changes by young people. Overview
  3. 3. While it’s debatable whether this is a good thing for the real estate market, the trend is something real estate investors should be analyzing. Given this declining share of homeowners and a pronounced decrease in buyers of property, it's clear that the future will belong to renters.
  4. 4. So, what types of properties should investors be considering? Contrary to what you may think, it’s not the high-end market. It’s the mid-tier market. Here are 3 reasons why midtier apartments are the future of real estate.
  5. 5. A More Affordable Rental Market In major cities especially, rent burdens are a serious issue. For example, in San Francisco, a renter making the median income for the city and paying the median rent for the city would have a rent-to-income ratio of 44%. Undoubtedly, many living there would opt for mid-tier homes over luxury ones.
  6. 6. Renters Statistics: 10% of all renters believe their rent is just not affordable and 16% believe it is borderline affordable. 36% believe their rent is just acceptably affordable, meaning they have to give up some things each month. Only 39% believe their rent is truly affordable.
  7. 7. Mid-Tier Apartment Rent Rates Rise Faster The cause is simple supply and demand. As mentioned above, too many new apartments are being built for luxury renters; supply exceeds demand. For the mid-tier market, not enough apartments are being built; supply doesn’t meet demand.
  8. 8. With so much supply, prices for high-end apartments are more likely to grow slowly, stagnate, or even drop. For example, in New York City, one of the most expensive markets on the planet, rent prices have been falling since the end of 2016. On the other hand, supply for mid-tier apartments isn’t meeting demand for the number of middle-class and working-class people looking for homes. This is leading to faster rises in rent—which means investors and developers that focus on this market stand to gain a lot.
  9. 9. Occupancy Rates are Higher For luxury apartments, surplus and high costs have pushed the average vacancy rate to 7%, while it’s under 4% for mid-tier rentals. This shows that you will have a much easier time finding renters for the middle market. What’s even more alarming is how long it’s taking for real estate firms to find tenants for high-end properties. Nationally, new units that opened in early 2015 still had an average vacancy rate of 18% after 18 months. That means many developers and investors in these properties have a serious vacancy problem—and lots of money is being left on the table.
  10. 10. Best ROI With mid-tier apartments, you’ll not only be able to fill a market need, you’ll also be able to raise rents more quickly and fill up more units. In the end, that equals a much better return on your investment, offering the ability to expand your real estate business and achieve your bigger goals of long-term success.
  11. 11. Thank you. M I C H A E L Z A R A N S K Y . C O M