Essential Housing Need

Simply put, people always need a place to live. The U.S. faces a critical housing shortage, and multifamily is uniquely positioned to benefit from the elevated supply/demand imbalance. According to recent estimates, the U.S. needs a staggering 3.7 million additional housing units (Freddie Mac, Q3 2024). This shortage will uniquely benefit existing multifamily and is likely to persist for 2 key reasons:

1. Difficulty & Increased Costs to Develop: New development costs continue to rise, with inflation, tariffs, and elevated interest rates making building new single- and multi-family units increasingly difficult. As a result, the housing market isn’t seeing the new supply it needs to satisfy demand, and there aren’t any signs of this getting better. Multifamily supply projections show the pipeline for new units in the Midwest significantly decreasing through 2027. This trend will likely persist, and supply will be heavily constrained until rents grow enough to afford the elevated development costs.

2. Delayed Homeownership: Elevated mortgage rates, rising home prices, and overall societal trends are leading younger generations to wait longer to buy. In 2024, the median age of the first-time home buyer hit a record high of 38-years old (National Association of Realtors, 2024). This significant shit is creating extended rental demand, as more people live in apartments for longer. We expect this trend to continue and benefit multifamily, particularly home alternatives like townhomes and build-to-rent communities.

Generate Stable, Predictable Cash Flow, Passively

Investing in passive multifamily can provide consistent and growing cash flow, something difficult to find in the stock market. However, real estate requires active management and oversight to ensure smooth and strong performance, historically serving as a barrier to many who could benefit from it. By partnering with Nautilus, you can enjoy ‘mailbox money’ without the headaches of day-to-day operations and management. Focus on what matters most to you while we work to maximize returns.

Potential for Appreciation and Equity Growth

Multifamily properties can appreciate over time, both through market growth and active strategies, leading to the potential for real wealth preservation and growth. Nautilus seeks to identify markets positioned to see outsized rental demand growth by leveraging class-leading models and near-real-time analytics, as well as pursues the following strategies to create value:

1. Management Improvements: Long-term individual and regional owners may face challenges in optimizing management efficiency, potentially leading to missed revenue opportunities or higher operational costs. By partnering with high-quality third-party management firms and implementing institutional best practices, Nautilus can uncover opportunities to enhance income, streamline operations, which can ultimately improve cash flow and property values.

2. Value-Add Opportunities: Many multifamily owners are complacent and/or inadequately capitalized to complete renovations to their properties. When acquiring properties, Nautilus budgets for capital projects to maintain and improve the overall condition and desirability of the property, which can help to increase income, strengthen demand, and grow value.

3. Off-Market Acquisitions: By leveraging over 1,000 longstanding relationships, a consistent presence in our target markets, and proactive outreach to local owners, Nautilus consistently sources off-market acquisition opportunities without competition from other buyers. This can allow Nautilus to acquire properties at a discount relative to market pricing.

Hedge Against Inflation

As inflation drives up the cost of living, rents in multifamily properties tend to increase as well—especially in markets with tight housing supply. Unlike long-term commercial leases, multifamily leases typically renew every 12 months, giving operators the ability to adjust pricing to market conditions.

With fears of persistent inflation continuing to reverberate throughout the economy and markets, investors in Midwest multifamily can benefit from built-in inflation protection, helping preserve real wealth and enhance long-term returns.

Stable Asset Insulated From Public Market Volatility

Multifamily real estate operations have historically held up well in recessions. Unlike office or retail spaces, people always need a place to live, regardless of market cycles. During downturns, renter demand has historically remained very resilient. Most recently during COVID-19, according to the National Multifamily Housing Council (NMHC), rent collections remained over 90% throughout 2020, even during lockdowns (NMHC Rent Payment Tracker, 2020).

By investing passively in well-managed multifamily properties, you’re tapping into an asset that can continue generating steady income even when other investments might be struggling.

Uniquely Tax Advantaged

One of the most powerful, yet often overlooked, benefits of multifamily real estate investments is the tax efficiency. As a passive investor (limited partner), you can benefit from pass-through taxable losses. These passive taxable losses are created through depreciation, which can be accelerated using cost segregation studies and bonus depreciation. An investment in multifamily real estate can yield a 40%+ passive taxable loss on invested equity, which can be of real benefit for high-net-worth individuals.

These taxable losses can be used to offset other passive taxable income, or carried forward to offset taxes on future distributions. While at sale, investors will have to recognize capital gains, these are taxed at significantly lower rates, creating a permanent tax rate arbitrage and keeping more of your money working for you, longer. These tax benefits are unparalleled in stocks, bonds, and even other real estate asset classes, and can be of real benefit when applied to your overall tax picture.

Final Thoughts:

Multifamily real estate is a powerful wealth-building vehicle with the potential to provide steady cash flow, long-term appreciation, and tax advantages while mitigating risks associated with other asset classes. Whether you're looking for passive income, portfolio diversification, or financial security, multifamily investing offers a proven solution for wealth preservation and growth.