Maintaining a balanced portfolio of multifamily assets is the most rational move an investor can make. Withstanding the property booms and busts, rather than reacting to them, will enable you to succeed as an investor without needless transactions.


Residential Investment Property Booms and Busts: How to Survive

Sep 13, 2018

While reading the real estate business news, you may get the impression that investing is one long roller-coaster of residential investment property booms and busts. But be careful how you interpret such news. While it is true that the real estate market is highly cyclical, that’s only one consideration among many that you need to take into account as a successful investor.

Residential Property Investment: No Boom Needed

If you have ever been tempted to act quickly on questionable advice, you are not alone—far from it—you’re the norm. Not only is the temptation human nature, it is also the nature of human institutions. We can easily see this in action. The multifamily housing market’s characteristically sharp fluctuations always peak in overbuilding—building more than the market can absorb right away. A good idea run rampant, that tendency has become even more extreme in this market cycle, with 300,000 new apartments coming onto the U.S. market this year alone.[1]

As a result, the market is slowing down and investment activity is shifting away from city centers to metro outskirts and the suburbs. Do you need to do anything with your urban investment properties and reinvest in the newly developing markets? Not likely. Markets should absorb the new apartments in time, and then, since construction is expected to drop off in response to market saturation, rents in the city centers will start to rise, causing the value of your investment to rise too.

An understanding of current market trends will be helpful to you as you look for investment property. If you are making your first multifamily property purchase, expanding your portfolio, or making a 1031 exchange, your investment instinct may be to buy in a rising market. But it depends on your strategy—if you have a long time-horizon, you may want to look for deals in down markets, for example.

Be More Rational Than the Real Estate Market

Rationality is a great benefit for an investor. It is not always clear what rationality is in business, however. Overbuilding serves Houston well, according to a real estate executive there. "Like clockwork, you can depend on developers to overbuild apartments ahead of demand," he said. "The constant competition for apartment stabilization keeps rents low with moderate growth."[2]

Even if your investment strategy is ideally rational, real life is likely to complicate your plans. Houston is a sterling example here, too. Its multifamily housing market was impacted by the collapse of oil prices in 2014 and Hurricane Harvey in 2017. The Houston market has bounced back admirably, but some investors undoubtedly experienced some bumps on the road to market recovery. Those bumps cannot be attributed to irrational strategizing, of course.

Maintaining a well-balanced investment portfolio of multifamily assets is the most rational move an investor can make. Withstanding the residential investment property booms and busts, rather than reacting to them, will enable you to succeed as an investor without needless transactions. You will save money in fees and charges and are likely to enjoy the benefits of your investments for a longer time. A good way to develop this resilience is to invest with an experienced and trusted real estate investment management company. Doing so will provide you the advantages of professional asset management at a very low level of risk.

At CWS Capital Partners, we are a fully-integrated multifamily real estate investment management firm that offers everything from due diligence and risk management to transaction support and property management. We specialize in assisting our clients with 1031 exchangesacquisitionsrepositioning, and development. We own and manage luxury multifamily investment communities in major markets around the country, and we employ a team of experts who can help you hone your investment strategy. 

Please contact us to learn more about investing with CWS Capital Partners.



The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.

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