The U.S. has had historically low interest rates for 10 years now. A whole generation of Americans have never invested in a rising rate environment. Multifamily real estate has been a rewarding investment during this time.
Rental demand is forecasted to remain strong, which indicates multifamily real estate investment will continue to provide strong returns on investment. The trend appears to be continuing to delay or avoid home ownership and for older homeowners to downsize for the flexibility that renting allows. These trends make multifamily investment property likely to continue to drive high demand for the foreseeable future.
Current owners of multifamily real estate properties are expected to continue reaping high returns and strong cash flow.
New buyers of multifamily real estate properties could face headwinds. Inventory of property for sale is one challenge. Another challenge is financing. Rising rates are causing higher cost of capital and tightening of lending standards. Tightening practices can include requiring higher levels of equity or collateral, limiting credit to lower qualified buyers, and limiting exposure to riskier properties or types of loans, such as refinancing or construction loans.
New buyers or refinancers of multifamily real estate investments will need to analyze the investment ratio closely to ensure the profitability of an investment. NOI, IRR, NPV, CAP rate, and cost per door.
Remember that rising rates indicates a healthy and growing economy and the U.S. is coming out of an artificially low interest rate period.