Here at Robinson Capital, we are data driven. We love to identify markets and undervaluation by the data that we observe. We encourage our passive investors to do the same. In this way, we and our investment team are not driven by emotion or hope that our participation in the gold rush of the multifamily asset class brings luck and good fortune. Instead, we invest with confidence because the data shows that our market is strong, there is population and job growth, demand and target rents can be achieved.
Absorption Explained
Speaking of demand, one metric that is good for passive investors to understand is absorption. Simply put, absorption measures the consumption of units in a target market and is a great gauge of current demand and whether there is overbuilding in the area. Ideally, investors want to see positive net absorption – that is, the net amount of units being rented means less units are now available.
For example, in a recent report that I read about one of our markets, Melbourne, FL, 900 new units were built and 1900 units were absorbed. This means that in spite of all the new construction, demand exceeds the current supply as people continue to rent both existing and new units.
We pay attention to this metric to understand the state of demand in our area and forecast the potential over the next few years. Especially, since our and our investors’ investments will be at work in communities for 3-5 years at a time, we want to ensure that there is a margin of safety for demand and that the data supports what we believe about an area.
Passive Investors
Passive investors do not need to be data geniuses to invest in multifamily, but they should have a solid understanding of the market and its associated trends. More importantly, it is important to work with a sponsor that invests on fundamentals and thoroughly understands the market.
If you have not already, download our free Passive Investor Startup Guide and schedule your call with us to find out more about our investment strategy and criteria and if passive investing in multifamily is right for you.
Safe Investing!
RRII
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– How To Use Your 401k To Invest In Real Estate
