Do you know what’s the hottest part of the market? This seems like an obvious answer because almost everyone will say single family homes. While single family homes dominate the residential market, they’re hot but not the hottest part of the real estate market.
You might be surprised to find out what it is because it’s the 2-4 multi family home. 2, 3 and 4 family homes are residential properties. It becomes a commercial property when you exceed 4 units. Although there are many investors purchasing these properties. there’s also a lot of owner occupiers.
The Appeal of Multi Family Residential Homes
Why are multi family homes so hot? Let’s look at the basics:
- They’re a hedge against inflation
- Rents go up but the mortgage payment is the same
- Tenant income helps to lower your cost of ownership
- Equity builds up quicker than in a single family
- Future refinancing gives you tax free income paid by your tenants
- Multi family homes create wealth allow for an earlier retirement
Rates of Return
In a previous article that I published recently, I spoke about cap rates regarding multi family homes. Investors buy based on the rate of return. They are more demanding than someone who is purchasing a multi family to live in. Both groups want a positive cash flow. This is because both groups are buying an investment.
Owner occupiers are also buying a home. Since that’s a big part of their purchase, their focus is not exclusively on the rate of return. Most buyers are in the millennial age group. That’s 26 to 42 years of age. They grew up with parents going through the Great Recession. As a result, more than you’d expect want an investment that’s also a house. This adds up to more demand.
The Hottest Part of the Market
Let’s take a quick look at the New Jersey MLS data. I look at what’s for sale versus what’s under contract. This matchup illustrates clearly what’s going on. Here’s what we have right now, tonight in the NJMLS. The data below is for everything on the market in each property type in all price ranges. Take a look and you’ll see that the hottest part of the market is the 2-4 family home followed by single families.