What today’s multifamily market is really telling investors
When the tide goes out
The recent market has made valuation harder, but also more important. A lower price can reflect deteriorating fundamentals, or simply a higher cost of capital. Levy says advisors need to know the difference.
“Looking at weighted average cap rate can tell you if something’s overvalued, which would be worrisome from an advisor standpoint, or undervalued, which can be more conservative,” he said. “But that also gives you a good indication that there’s growth if it’s undervalued.”
That’s where Levy encourages advisors to dig deeper. Historical returns and distributions can show how consistently a manager has delivered through different market cycles, while metrics such as occupancy, same-property net operating income growth, and payout ratios offer a clearer picture of how the portfolio is performing beneath the headline yield.
For investors, Michael says private REITs provide access to an asset class that would otherwise be difficult to own directly. Rather than purchasing and managing a single apartment building, investors can gain diversified exposure to dozens of professionally managed properties through a single investment. They can also complement traditional public equities and fixed income by adding a source of returns that isn’t driven solely by public market movements.
“A lot of people, for $10,000, can’t buy an apartment building,” he said. “So you get the opportunity to participate and buy 40 or 50 or 100 apartment buildings, again with the upside and potential of growing.”
