Multifamily vs. Condo: A Tale of Two Markets

Why Multifamily Might Be a Smarter Investment Than Condos in Florida

Florida’s vibrant real estate scene is bursting with potentially lucrative investment opportunities. But the importance of selecting the right investment type should not be overlooked. While condos have traditionally been a sought-after asset class in the Florida market, recent trends indicate that multifamily properties likely offer a more strategic and advantageous investment option, particularly considering today’s market climate. This industry dichotomy between multifamily and condominiums showcases a clear contrast: one thriving while the other navigates challenging headwinds.

Multifamily Offers Stability and Growth Potential

The multifamily sector has demonstrated remarkable strength in the face of economic hurdles, positioning it as a compelling choice of investment for a variety of reasons:

Consistent Demand

Rental housing is a fundamental necessity, helping to ensure a stable return stream for investors even in challenging economic conditions; on top of that, Florida’s continuing population growth  fuels an ongoing need for more rental units. Of the entire United States, Florida is one of the fastest-growing states with a consistent population growth rate of at least 1.5% each year. By the year 2030, Florida’s population is expected to grow by 2.5 million. To keep pace with Florida’s demand for multifamily housing over the next five years, there is an estimated shortfall of 82,000 units in Florida according to The Shimberg Center for Housing Studies.

Scale and Efficiency

Multifamily properties offer risk diversification by catering to various income levels and demographics within a rental unit portfolio. Owning a multifamily property enables the collection of rent from multiple units, potentially increasing overall return on investment compared to owning a single condo. Occupancy rates are one of the most important factors to consider when evaluating multifamily properties. A healthy occupancy rate can lead to higher rental income and better returns. The multifamily property occupancy rate in Florida is 2% higher than the United States average, according to CBRE, with a 95.3% average occupancy rate.

Market Stability and Inflation Protection

Rental income typically rises with inflation, serving as a hedge against escalating costs. Recent data indicates a stable trend in the multifamily market, offering a less volatile environment compared to concerns about a potential condo market crash. As an additional sentiment, in 2023, Florida’s average household annual income was roughly $123,400 vs. the United States mean of $97,400. Data reflecting January through August of 2023 shows that among the households that have moved into professionally managed properties in Florida’s major metro areas, the average household annual income was approximately $123,400. This number is roughly 27% above the United States mean of $97,400 according to Willett. Higher incomes among renters like we’re seeing in Florida opens the door to the probability of increased rents and occupancy rates, which can lead to higher investor returns.

A Stormy Outlook for Florida’s Condo Market

In stark contrast to the  multifamily sector’s resilience, the condo market is currently weathering a storm of challenges. Various factors are contributing to its current softness. Florida, once a hub of condo development, is now feeling the full impact of a downturn in the condo market due to — among other things — rising insurance costs, heightened building safety concerns following incidents like the Surfside condo collapse, and overall economic uncertainty. These factors have contributed to  a tough environment for condo owners and investors in the Florida market.

Costs and Interest Rates Rising

Higher interest rates make mortgage payments more expensive, and economic concerns are making buyers cautious — both heavily impacting condo sales. Additionally, homeowners insurance rates in Florida have skyrocketed. In 2023 alone, the average policy cost surged by 40%, as reported by Redfin. Surpassing the national average, homeowners in Florida are now paying three times more for insurance coverage.

Decreased Rental Attractiveness

Overbuilding in some regions has led to an excess supply of condos, putting downward pressure on prices while rising HOA fees and tightening regulations could make condos less competitive with apartments in terms of rent. In light of the recent condominium safety law passed by the Florida Legislature in May 2022, there has been a surge of new condo listings hitting the market in Florida. Sellers are looking to offload their properties at discounted prices as they navigate the new regulations requiring more stringent inspections and increased financial reserves for HOAs.

Potential Crash

Experts fear a nationwide condo market crash, fueled by rising interest rates and an oversupply in some areas. Recent news reports highlight a “catastrophic rush” by Florida condo owners to sell. This could lead to falling condo values, impacting investor returns.

For investors considering Florida’s real estate market, the choice between condos and multifamily properties is crucial. Emerging trends point towards multifamily properties as a more secure and lucrative investment option. Investors seeking stable and reliable returns may find multifamily properties to be the more attractive option in today’s market environment. For a comprehensive look at Roers Cos.’ current and future investment opportunities in Florida, reach out to your investor relations professional or contact the investor relations team here.

Sources: CBRE, Globest.com, HousingWire, Newsweek, Shimberg Center for Housing Studies, The Palm Beach Post, Redfin, Rental Income Advisors, Willett

NO OFFER OF SECURITIES; DISCLOSURE OF INTERESTS: Under no circumstances should any material or information contained herein be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of the  confidential Private Placement Memorandum relating to the particular investment. Access to information about investments with projects undertaken by Roers Companies LLC, Roers Companies Project Holdings LLC, or any of their respective affiliates is limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who are generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments.

NO OFFER OF INVESTMENT, LEGAL OR TAX ADVICE. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. Prior to making any investment you should consult with a licensed investment, financial advisor, legal and tax advisor.