Is Multifamily Real Estate the Opportunity You’ve Been Waiting For?

Ever find yourself reminiscing about the days when investing seemed more straightforward – even "easier?"

Don't despair. These cycles aren't fun, but they are normal.

While the landscape has certainly evolved, multifamily real estate continues to shine as a promising opportunity for real estate investors. Despite the ups and downs of recent years, this sector has shown remarkable resilience.

Understanding the underlying fundamentals of real estate and the multifamily sector can help you make informed decisions.

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The Multifamily Advantage

Consistent Demand

Rental housing demand is on the rise.

More than 36% of U.S. households are renters, a trend fueled by urban living preferences and the challenges of homeownership. This steady demand positions multifamily assets as a reliable investment. The shift towards renting doesn’t seem to be a temporary trend, but a reflection of changing lifestyles and economic realities.

Stable Income

Multifamily properties offer consistent rental income. With occupancy rates hovering around 95% nationwide, investors can benefit from a dependable revenue stream, even when the economy shifts. This stability is particularly attractive in uncertain times, providing a buffer against market volatility.

Appreciation Potential

Beyond the income generated, multifamily properties also tend to appreciate over time. Net operating income can be increased through strategic upgrades and efficient management, boosting property value. According to the National Association of Realtors, multifamily properties have seen an average annual appreciation rate of 5% over the past decade, despite the recent real estate turmoil. This dual benefit of income and appreciation makes multifamily a compelling choice for long-term growth.

Cost Efficiency

Managing multiple units under one roof allows for cost savings that single-family investments can’t match. Shared maintenance and operational expenses lead to higher net returns, creating efficiency and boosting returns for multifamily investments.

Tax Benefits

Real estate investments are blessed with attractive tax benefits. Depreciation, mortgage interest deductions, and 1031 exchanges can enhance returns, making these investments financially appealing. These tax advantages can significantly boost returns for investors.

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Advanced Market Landscape and Investment Viability

For seasoned investors, understanding the nuanced dynamics of the multifamily market is crucial.

Here are some advanced insights that can guide your investment strategies:

• Interest rate Impact: Despite rising interest rates, the multifamily sector has shown resilience. According to the FED, while mortgage rates have climbed, they are beginning to stabilize, potentially creating a more favorable borrowing environment. This stabilization could enhance investment return profiles, making multifamily assets more attractive.
• Shifting Demographics: Significant demographic shifts are underway, particularly among millennials and Gen Z, who prioritize flexibility and urban living. This growing demographic of renters increases demand for high-quality multifamily units, especially in metropolitan areas.
• Enhanced Value through Technology: The integration of technology in property management has evolved from convenience to necessity. For example, Proptech solutions are streamlining operations, enhancing tenant experiences, and improving occupancy rates. Investment in real estate technology reached $32 billion in 2023, highlighting the importance of tech-savvy management.
• Environmental Sustainability and Resilience: Sustainability is becoming a compliance issue rather than just a trend. Properties with strong sustainability credentials tend to have lower vacancy rates and higher tenant retention. Investors focusing on sustainability are likely to see both immediate and long-term benefits in property performance.
• Predictive Analytics for Investment Decisions: Advanced predictive analytics enable investors to anticipate market movements and adjust strategies accordingly. By leveraging big data analytics, investors can better understand local market trends, tenant demographics, and potential economic shifts impacting rental demand.

These insights underscore the multifamily sector’s potential for growth and the strategic opportunities available to those willing to navigate the complexities of the current market landscape.

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Positions Available for Current Cash Flow

The Kenzie

We have had excellent response to the final capital raise for the Kenzie. Investors will realize immediate cash flow AND upside potential on an in-place asset.

There are still spots available to cash in on next month's projected distribution. With interest rates falling, we believe we will outperform our projections at the time of refinance.

The Kenzie is a 213-unit, Class B property located in Hoover, AL, the most affluent suburb of Birmingham. The property was purchased by Carbon on May 8, 2024 and renovations are in progress.

The Kenzie was acquired at less than 50% of replacement value. Our debt is fixed at 5.95% for five years and is low-leverage at 50% LTC and 60% LTV, providing a cushion of safety. The business plan calls for a refinance at roughly 3 years, with projected return of significant investor capital. Falling interest rates will accelerate that plan.

We believe we have done our best to eliminate controllable risks by being conservative on leverage, capital stack, rent assumptions, and renovation timeline.

We are currently accruing excess cash for distribution. Revenue has exceeded expectation in our first three months of ownership and we are planning our first distribution at the end of Q3.

The benefit to you as an investor is that the acquisition risk and interest rate risk have been removed from the table. Also, the projected distribution is already scheduled, barring catastrophe. That is a situation that is difficult to reproduce.

Currently, we are achieving near pro forma renovated rents on classic, unrenovated units, putting us ahead of schedule. (This means we are achieving rents at near proforma rates on units that have NOT been renovated.) We are also currently 98% pre-leased.

If you would like a more in-depth discussion, we have recorded a new webinar post closing. Just click the link below to access the webinar:

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A link to the updated Operating Memorandum is below for your convenience.

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Below are some pictures of the property and the renovations in progress.

If you have an interest in investing, click the link below:

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If you've created an account on our portal in the past, click "Login here" and proceed to make your commitment.

If you haven't created an account on our portal before, then you'll need to:

1. Click "Soft Commit"
2. Fill out the new investor form that provides basic demographics
3. You will receive an email with a link to create your username/password
4. Create the username and password
5. Proceed to make the commitment for The Kenzie

If you have any questions, please email IR@carboncrei.com.