By John Triplett
As the economy grows and the job market remains strong, what will 2025 look like for the multifamily industry?
“We expect multifamily advertised rents to increase moderately in 2025, by 1.5% nationally,” writes Yardi Matrix writes in its winter report. “Many of the underlying conditions that drove strong demand should persist in 2025. Most notably, weak buying power and the high costs of homeownership continue to keep potential buyers in apartments longer.”
While 2025 looks good, the market faces some questions, “including the impact of potential economic policy changes, how long it will take to absorb deliveries in high-growth Sun Belt markets, and whether interest rates will fall enough to revive transactions and avoid distress,” the company says in the Multifamily Outlook for 2025.
Changes Are Coming In 2025
Yardi Matrix says the incoming Donald Trump administration will implement a new policy course.
“Some campaign policies such as relaxing regulations, eschewing rent control and reducing taxes should have a positive impact on multifamily. However, tariff threats and promises of large-scale deportations could raise prices and lower apartment demand,” the report says.
Highlights of the report
- In terms of advertised rents, metros in the Northeast and Midwest will continue to lead, boosted by positive demand and weak supply growth.
- The large number of properties under construction will support robust supply growth again in 2025, but the dwindling number of starts will stifle deliveries in 2026 and 2027.
- Supply growth is distributed unevenly, as 12 to 15 high-growth markets account for a large percentage of deliveries.
- At the same time, a national housing shortage has built up over decades, making development necessary to address affordability.
- Activity in capital markets will be heavily dependent on the direction of interest rates. Increased trading activity is expected in 2024, but rate cuts likely won’t be fast or deep enough for a strong rebound in 2025.
- At the same time, rate cuts won’t be enough to significantly alter the loan-default issue. Some loans that have been extended in the hope of imminent lower rates will default, though that cohort is not expected to be large enough to create a systemic crisis.
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The Elephant in the Room?
Yardi Matrix says, “The elephant in the room for the forecast: a new administration that promises to bring about numerous policy changes. Growth should benefit from some new policies” such as extension of tax cuts and relaxing of some regulations.
- The government is likely to drop regulation of multifamily-fee management, while policies that stymie development will be loosened or not strictly enforced, and funding of affordable housing programs such as opportunity zones and the Low-Income Housing Tax Credit should remain intact or be expanded.
- The President-elect has also expressed his willingness to open some federal land to housing construction, which will reduce costs, as land prices alone can be significant barriers for developers.
“But some proposed policies could be detrimental to multifamily housing. Trump’s tariffs could not only elevate overall inflation but increase the cost of building materials, which could hinder development and possibly lead to retaliation from other countries.
“Also, higher costs could inhibit the Federal Reserve from cutting interest rates, which are such a key hurdle to commercial real-estate transactions.
The campaign promise for large-scale deportations of undocumented immigrants is another policy with potential negative impact as it could reduce housing demand and construction workers and introduce other areas of uncertainty. “Immigration, both legal and illegal, has been a source of demand for multifamily,” Yardi Matrix writes in the report.
The Work-from-Home Question
Work-from-home is another driver of rental demand, even as calls to return to the office become more prevalent.
Roughly two-thirds of office workers are either hybrid or fully remote, which translates into more people wanting space for home offices. Work-from-home also boosts demand in suburbs and less expensive metros.
Read the full report from Yardi Matrix here.
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By Nancy Abrams
Tiny homes, a popular alternative to the traditionally large American-style home, are being used by people trying to downsize and also as short-term rentals, disaster relief housing and homeless relief housing. Although many people consider a house under 600 square feet to be a tiny home, the 2021 International Residential Code (IRC) stated that tiny houses are dwelling
units measuring 400 square feet or less in floor area, excluding lofts.
TINY HOMES = BIG PROFITS
Leasing tiny homes is one of the latest trends in the rental business. They have proven to be a good venture, especially for first-time investors. Tiny houses range in price from just $30,000 to $60,000 to purchase. However, they do not appreciate in value as quickly as a traditional home.
On the other hand, tiny houses and ADUs (accessory dwelling units) that are situated on a property with a traditional dwelling may see a greater increase in value. According to Bankrate,
if your tiny home is on land that you own and is built on a solid foundation, you are more likely to receive a good return on your investment when you go to sell it. In other words, the value of your tiny home is directly related to its permanence. AvalonBay has added about 50 ADUs into
some of its California communities. The average 425-square-foot studios and junior one-bedroom units generate rent between $4 and $8 per square foot. On average, the units have been rented out within 30 days and there have been minimal concerns from existing tenants.
BUILDING A TINY HOME TO RENT
If you are going to use your tiny home for short-term rentals, pick an area close to tourist attractions, parks, beaches, schools and business districts. Before you begin, find out if you can legally operate a short-term rental in your intended area. Many municipalities have minimum square footage requirements for residences. Some areas may regulate ADUs or require specific foundation types. There may also be certain prerequisites regarding plumbing and electricity. It is highly recommended that you hire a builder who is also familiar with the tiny home laws and regulations for the county in which you will be developing. Financing for your tiny home may be more difficult than if you were constructing a traditional home, but you may be able to secure an FHA loan. If the tiny house is fixed to a permanent foundation, potential owners can explore conventional mortgages.
You may be considering creating a tiny home community of multiple small homes. Remember,
you need to make sure the cost of its development does not surpass your potential ROI (return on investment). As a tiny home developer, you may receive a high return on investment due to their inexpensive prices. Currently, the largest tiny home development in the country is located in Salida, Colorado, and features 200 tiny homes for rent. The homes include amenities like free Wi-Fi, air conditioning, and heating. AAOA member Alex Gladkov is presently building a tiny home community in Barstow, CA, which will eventually include 51 residences. Alex shared that “Hidden Mesa Estates offers a great financial advantage for those who seek a sleek house without the burden of costly rent.”
PREPARING YOUR TINY HOME FOR TENANTS
People interested in tiny homes come from a wide range of backgrounds and personalities, so choosing a clean, modern look might appeal to some, while a cozy, cabin inspired interior might draw in others. Whichever décor you choose, tiny homes by definition are less expensive
to build and decorate, making it easier to afford higher quality furnishings and hardware. Many tiny houses feature a loft for sleeping and storing. However, if you are expecting to rent to senior citizens and/or disabled persons, larger floor plans with a bed, bathroom and kitchen on the main floor are more functional. Don’t forget the exterior of your rental. A porch and a
garden will create a welcoming first impression. If you have a rear yard, a fire pit and seating will be appreciated amenities. Hospitable.com recommends that you sign up for Airbnb’s free rental protection, AirCover for Hosts, to protect you in case something happens at your property. But AirCover for Hosts doesn’t cover everything, so you may want to consider an additional insurance policy to provide full coverage.
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HOW TO START A TINY HOME RENTAL BUSINESS
Many rental property owners choose to create an LLC for its tax advantages and protection from personal liability. Even if you’ve already used an LLC for other properties, you might consider creating a separate LLC for your tiny house rental. At this point, you should have given thought to what your policies and procedures will be. What are the minimum and maximum stays you will allow and how will you accept reservations? What are your rules regarding property upkeep and damages? Can tenants have parties or pets? All of your policies need to be incorporated into your lease. Airbnb, Vrbo and Booking.com are among several peer to-peer (P2P) platforms that allow property owners to connect with interested short-term tenants. When you are ready to accept guests, post beautiful interior and exterior shots of your tiny house along with an accurate listing description. Remember, promising something that does not actually exist will definitely end up as a one-star review.
Include information in your listing about the surrounding area and its recreational amenities, local attractions, special events, any upcoming sports activities, hiking trails, etc. Be sure to calculate your ROI before settling on a rent schedule. Your price should be affordable so you don’t miss booking opportunities and not so low that you are not getting as much money as
you could. Make an effort to respond to all booking inquiries promptly and be proactive in your conversations with guests before, during and after their stay. Excellent communication will be rewarded with five-star reviews and repeat business. Listing your tiny home on a P2P platform is a great start, but you will still need to market it in other ways, such as social media, in order to reach the largest number of potential tenants. When considering an applicant, remember that AAOA offers industry-leading tenant screening services to help you make the most informed decision possible.
CONCLUSION
A tiny house can make an excellent rental property investment, especially in the vacation and short-term rental market. However, like any venture, investing in a tiny house as a rental property has advantages and drawbacks. Do your due diligence, learn local regulations, market it wisely and you, too, can be a tiny house landlord.
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