Construction of multifamily units and conversion of single-family homes into multifamily homes are on the rise, according to the 2016 State of the Nation’s Housing report from the Joint Center for Housing Studies of Harvard University.
The report, unveiled June 22 at the National Press Club in Washington, D.C., shows that the rental market continues to drive the housing recovery. More than 36 percent of U.S. households chose to rent in 2015, the largest percentage since the 1960s. The number of renter households grew by more than 9 million in the last decade, the report showed. Renter households earning $100,000 or more represent the fastest growing segment over the past three years.
That’s good news for people like Ryan Garcilazo, a Chicago-based remodeler who works exclusively with investors to renovate houses. Garcilazo says converting single-family homes into multi-family units is a growing option investors are pursuing.
“If you’re a buy-and-hold type of investor, a conversion to multi-family offers reliable, consistent cash flow,” he says.
Converting single-family homes to multi-family homes means more than just adding a second kitchen, Garcilazo says. Conversions can also require new floor plans, converting a walk-in closet into a bedroom, adding a dormer, or modifying the roof to provide headroom on the second floor.
Garcilazo says conversion costs average about $225,000, and that investors should also plan to set aside another 20 percent for property taxes and maintenance.
Other highlights from the report:
- The annual rate of return on rental property investments rose 12 percent in 2015, driven in large part by price appreciation
- Multi-family lending rose sharply in 2015, with the MBA Originations Index showing a 31 percent increase in the dollar volume of multi-family homes originated
- Prices for commercial-grade apartment properties rose 13 percent in 2015, the sixth consecutive year of double-digit growth
View the complete report.