Is 2025 a Good Time to Buy Multifamily Real Estate?

Presented by Andrew Gaines

I think the answer is, yes, under the right circumstances.  But let’s explore the logic.  First, we should review the events of the last few years.  The real estate market peaked sometime in early 2022.  As the Federal Reserve rapidly raised interest rates the market headed into the downward part of the cycle.  Financing became increasingly difficult, property valuations declined by as much as 30% and transaction volume came to a standstill.  Some properties became distressed and many projects fell apart completely.  Rates have since stabilized and so have property values. As properties now come on the market they are at a significant discount to their previous highs.  There is a recognition among sellers that we are in a new part of the market cycle and asking prices need to reflect that.

Another significant change is that multifamily building starts have declined substantially. According to GLOBEST.COM, starts were down 50% year over year at the end of 2024. New supply flooding many markets put downward pressure on rents at the same time that interest rates were ramping up.  That is now reversing as new construction projects become more challenging to finance at current interest rates.  According to Realpage.com, multifamily permits are also down by 10-50% in the top 10 metros.  This is another sign that there will be less new inventory coming online in the next few years.  This means that demand for existing properties will likely increase and rent growth can positively normalize.

There also continues to be a nationwide housing shortage estimated at 3.8 million units by Freddie Mac. According to the Harvard Joint Center for Housing Studies this number could be as high as 5.5 million units.  In any case, the existing demand for housing exceeds supply by a substantial margin.  This is especially poignant at a time when housing affordability is at an all-time low in many metros across the country.

In short, the supply, demand and affordability features of the market are favorable for investment. In addition, sellers are beginning to come to the table with appropriately discounted prices.  So, under what additional circumstances would buying multifamily real estate in 2025 make sense?  I would highlight three things.

1.     Value-add opportunities in growing metros with positive rent growth (think the Sunbelt)

2.     Fixed rate longer duration-financing (not less than 5 years)

3.     Immediate cash flow (within the first year)

We are keeping our eyes open for projects like this.  If that interests you, please reach out. I would be happy to discuss how we might be able to help you achieve your real estate investing goals this year.