June 9, 2022

JF2837: How to See the Future — The Next 10 Years in Multifamily | Actively Passive Investing Show ft. Travis Watts


In this episode, Travis discusses the future of multifamily within a 10-year time frame. His projections are based on his investor relations experience and conversations he has had with investors regarding uncertainty in the current market. By zooming out to look at things from a macro level, he hopes to help others avoid analysis by paralysis when it comes to their own investments.


1. Millennials Will Continue Renting

Because there is currently a lack of inventory and affordability when it comes to single-family homes, millennials who are at the age to buy are seeking out multifamily housing instead. This means in the short term, the trend is bullish for multifamily apartments.


2. Baby Boomer Migration

In 10 years, the average baby boomer will be about 77 years old. Members of this generation who have been holding onto their single-family homes are likely to begin migrating to assisted living and multifamily apartments over the next decade. 


3. Top Three Markets to Watch

The top three growth markets from 2022 to 2032 are projected to be Orlando, Austin, and Phoenix. While this is just based on one set of data, it’s something to consider when deciding where to invest next. 


4. Follow the Job Growth

While Travis doesn’t have any specific job growth predictions, he stresses that this is an important factor to consider when it comes to multifamily apartment investing, particularly if you are an LP investor. Data should support incomes and job diversification within a 15-mile radius of the property. There should be enough employment in the area to support a high occupancy.



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Travis Watts: Welcome back, Best Ever listeners. I'm your host, Travis Watts. This is another episode of The Actively Passive Investing Show. What's been on my mind for this topic today is a look into the future. Let's talk about multifamily apartments as we zoom out and take a peek at a 10-year timeframe.

This is all coming from my investor relations background. As many of you know, I work with Joe Fairless at Ashcroft Capital, so a lot of my week is comprised of speaking to investors and I've just noticed, especially since the pandemic for the last couple of years, that we've got a lot of investors on the sidelines, we've got a lot of uncertainty, obviously, in the markets, we've got a very volatile stock market as we saw at the very beginning and onset of the pandemic... And when scary headlines come out and when the news and media tries to paint this doom and gloom picture, a lot of people get scared. So I just wanted to, again, zoom out and talk about real estate as a long-term investor, as many of us are.

And the first thing I want to point out is being a real estate investor is a long-term play. You can be a real estate speculator, which would be a lot like flipping houses, for example, where your timeframe might be 30 days to maybe 180 days to turn around a property, but as a real estate investor, your time horizon may be five years, 10 years, 20 years... And I just wanted to hop on the show here today to, first of all, say I myself have certainly been caught up in the short side of thinking, only thinking about today and this month and this year. And I've given the story in a different way on previous episodes, but I remember moving to Central Florida, 2017, with my wife, we're buying this home, and in my mind, I'm pretty bullish on real estate and Florida in general. And I remember saying, "New Yorkers, New Jersey people, they're going to be moving down here in droves, and I just see this being the next big booming place." And then, scary headlines and things were coming out, and by 2018, the Fed started raising rates, the stock market started collapsing. I just started second-guessing my decision, because I was looking at the short-term. So we ended up selling that house early. That was going to be a five, 10, 15-year house, and not even a year into it, we sold it in 2018. And I said, "What I'm going to do is take that capital back and I'm going to go invest it instead of owning a "liability." The old Robert Kiyosaki, "Your house is not an asset."

And the problem with all of that, as you might imagine, sitting here in 2022, is that exactly what I thought was going to occur ended up occurring, but not just because of the pandemic, but baby boomers retiring, high-tax states, people were looking for more affordable housing, and possibly better weather... Florida has no state income tax; I did a whole episode on why Orlando -- a few episodes back, so go check that out if you want to learn more.

What's funny is this is just a recent reminder, because two weeks ago, actually about a week and a half ago, that house went up for sale, the house that we had sold in 2018... Listed $225,000 above where we had sold the house. So the long story would have played out, but I was too short-sighted in my thinking.

So that's why I'm bringing this episode to your attention, and refreshing myself here to remember to zoom out of the scary headlines, to not just look at what's happening in 2022, but to be projecting out 10 years or longer if you're going to stay in the game, if you're really dedicated to being a real estate investor.

So it's useful to be able to zoom in sometimes, to analyze a deal, to underwrite a deal, maybe to put together a strategy for your investing, something like that. But it's also useful to be able to zoom out, look at the macro level, and not get caught up in analysis by paralysis sometimes.

So to that point, if we look at multifamily apartments in 2007 - this was leading right up to the Great Recession in 2008, and really a real estate collapse - the average price per door on a multifamily apartment nationwide, United States stats, was $95,000 per door in 2007. People were saying, "It's too hot." "It's overrun." "It's absurd." And then the Great Recession happens.

Today, your average cost per door is nearing $220,000, so more than double what it was back then. And the point is, markets will always go in cycles. There will always be some volatility. There will always be some potential pain in the short run. But again, if you're basically dollar-cost averaging in deals year by year and you're looking at the big picture in the long run, real estate tends to go up. This has held true for 100+ years; much longer than that, but just to use a more recent history scope.

Break: [00:06:53] - [00:08:40]

Travis Watts: Another stat I find interesting is your average apartment rent in 2007, right before the collapse, was a little bit over $1,000 per door, and today we're nearing around $1,600 per door. And I think I've mentioned it before, but even during the worst of the recession, in apartments, the average per-door rent dropped about $150 or so. So it wasn't this mega collapse where rent goes from $1,000 a month down to $200 a month and everyone loses their properties and goes underwater.

Another thing I love about apartment investing is that it's very essential. People really do need affordable places to live, and just apartments in general; not everyone is going to be a homeowner, not everybody can be a homeowner. So it's nice to be an investor in something like that.

So to bring this topic home, let's talk about the ten-year outlook and what you can look at in order to determine what might be happening down the road in multifamily. So the first thing to point out is that millennials are at home-buying age, statistically speaking, much like baby boomers were in around 1983. But the issue with single-family homes right now is, well, A) lack of inventory, and B) lack of affordability, as I'm sure you're quite aware, if you just take a look and probably the market that you're in.

So at least, the trend in the short-term is very bullish for rentals, for multifamily apartments. Baby boomers, on the other hand, are generally holding on to their single-family homes in the short run. They're not old enough to be letting go of those homes because they need to go into assisted living, or they prefer to have a rental, because maybe it's one story and no landscaping and no stairs and things like that... Which leads me to the next point, which is in the intermediate to longer-term, I think we will start seeing that shift and that movement. So if you zoom out 10 years, your average baby boomer will be about 77 years old. At that point, assisted living and multifamily apartments in general, I think we could make a pretty bullish case that we'll start seeing a big migration there.

The other thing to look at that I briefly already mentioned with Florida are just regions. Where are you investing? Where do you want to have your money parked from today, five, seven, 10 years, maybe even 20 years out? It's pretty hard to predict 20 years out. But Moody's Analytics did that here recently, and they've found that, from their research, they predict the top three growth markets to be in over a 20-year timeframe from 2022 to 2032, are Orlando, Florida, Austin, Texas, and Phoenix, Arizona, which I thought was interesting. Obviously, just one set of data; you'll want to look at more research than just that. But something to be thinking about, where people are moving and setting up shop, so to speak, and going to be retiring.

And the last thing that's really important when it comes to multifamily apartments, not so much assisted living and things like that, is the job growth. What industries exist in the market that you're in. And it's really important if you guys are a limited partner investor, like I am in these deals, that you're looking at the data that supports incomes and job diversification within a five-mile, 10-mile, and 15-mile radius of the property.

Generally speaking, people aren't wanting to commute more than 15 miles out for a job, so you just want to know. Is it very diverse, where you have technology and finance and healthcare and tourism and all the rest? At the end of the day, multifamily is all about can your residents afford to pay their rent, and is there enough employment in the area to support a high occupancy? So always keep that front of mind when you're investing in apartments.

So the reason I wanted to record this episode is to remind myself and all of you listening that real estate investing performs well over the long haul. You will see a lot of scary headlines. They've been there every single year. I've shared that story of a very intelligent individual who told me in 2015 there was going to be a real estate collapse around the corner, and that he was sitting on the sidelines. And he pretty much has been sitting on the sidelines, believe it or not, all the way up until about now, 2021 and 2022. He's jumping back in the game at this point and now sees a bullish case, which I think is really ironic.

So just skimming through YouTube and different sources, I'm seeing all this "Don't buy real estate in 2022", "Why you'll regret buying a single-family home." And of course, the thesis behind most of that is because the Fed is raising rates. The problem is we don't know how much they're going to raise rates. We don't know if they're going to start to retract, like they did in 2018 and say, "Never mind. We're going to go the other direction now and try to save the economy again." We just don't know what's going to happen. So to sit it out and wait five to seven years - you could be investing in some really good opportunities between now and then.

We talked about the bullish case for the short-term and the intermediate to long term with baby boomers and millennials renting, and we talked about demographics, jobs and where people and companies are relocating to. Always the common denominator to your success in the real estate business. Don't forget to diversify and to zoom out and look at the macro level. I think that's the main takeaway that I wanted to share with you here today.

Thank you guys so much for tuning in to another episode. If we haven't connected on LinkedIn, Facebook, BiggerPockets, you name it. Travis Watts, Instagram and Facebook are @passiveinvestortips. Always happy to be a resource for you or anyone else who you feel could benefit from this content. Don't forget to like, share, and subscribe. Have a Best Ever week, and we'll see you on the next episode of The Actively Passive Investing Show.

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