Robust fundamentals driving Texas’s multi-family sector

by Neil Sharma on 04 Mar 2021

The Sun Belt states are the beneficiaries of significant interstate migration in the U.S., and with a deluge of new residents, the multi-family residential sector is slated to see voracious demand, particularly over the next decade.

According to GTA-based Seth Ferguson, CEO of Multifamily Real Estate Investments Inc., Texas has arguably the most propitious horizon in the Sun Belt, driven primarily by a rapidly growing population and, true to the state’s ethos, limited regulatory regimes.

“There are a number of leading cities, in terms of ‘young population’ growth, including Dallas-Fort Worth, Houston, Austin and San Antonio—they’re in the top-10 countrywide for population growth,” said Ferguson, who’s also the host of TV show Real Estate Simplified and the Real Wealth Through Real Estate podcast. “There’s a strong job market and robust GDP growth. Between 2010 and 2019, Dallas-Fort Worth gained 1.35 million new residents, and the 2020-2029 forecast calls for an additional 1.39 million residents. You have tremendous growth, and it all comes down to jobs.”

Hyper job creation in the aforementioned cities and Texas’s traditional aversion to regulation have conspired to lure millennial-aged Americans from both coasts—New York City, Philadelphia, Baltimore and Sacramento are among the bottom-10 U.S. cities for population growth—many of whom are relocating to Houston, Austin and San Antonio.

“From 2010 to 2019, Houston gained 1.28 million residents, and the 2020-2029 forecast is another 1.24 million, so when you look at Houston and Dallas-Fort Worth, there’s a huge population boom, and it will drive the economy for the next two to three decades,” said Ferguson.

However, even in a state that has substantially less red tape than Canada’s major cities, there’s a pronounced housing deficit that’s about to become amplified by the imminent population boom, and that’s created an opportunity in the multi-family residential sector.

Multifamily Real Estate Investments Inc. purchases underperforming assets that contain over 100 apartment units and systematically augments everything from how they’re managed to the rental rates.

“We focus on value-add opportunities—that could be mismanaged properties where the rents are below market value or where expenses are way too high, and we implement our system, whether it’s renovations or new management,” said Ferguson. “We take underperforming assets and optimize them, and after our work is done that generates returns for our investors.”

Before Multifamily Real Estate Investments Inc. finds assets in which to invest, it undertakes stringent due diligence to ascertain whether or not it’s operating in the right city, Ferguson added.

“The market cycle starts with a growing GDP and business expansion, job availability and how many people move to the city for those jobs, and that puts upward pressure on rent as competition increases, compresses cap rates and increases the value of the assets,” said Ferguson.

“We’re seeing that through the Sun Belt because they have jobs, less red tape and a better tax situation. As a result, productive millennials are creating a very promising horizon for multi-family real estate.”

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