There is no shortage of options when it comes to investing in multifamily real estate, which can present a difficult decision for new investors.

Should you invest in triple-deckers? Luxury condos? Or gated communities? For real estate investors seeking a strategic opportunity, workforce housing is an excellent option. Workforce housing caters to middle and lower-middle income earners and it can be a stable investment through turbulent economic times. 

At Colony Hills Capital, we specialize in investing in this sector of real estate through our individual property deals and funds. Learn more about what workforce housing is, and why it can make a good investment.

What is Workforce Housing?

Sometimes referred to as “Class B” and value-add, workforce housing represents a critical segment in the real estate market, designed to accommodate the housing needs of middle-income workers and their families. 

This demographic often includes essential workers such as:

  • Teachers
  • Firefighters
  • Nurses
  • Law enforcement officers

The primary goal of workforce housing is to provide quality, accessible living spaces in proximity to employment centers. Unlike the terms “affordable” or “low-income housing,” workforce housing caters to a broader income range, typically targeting households earning between 60% to 120% of the area’s median income.

Benefits of Investing in Workforce Housing

Workforce housing presents a unique opportunity for real estate investors for three key reasons:

  • There is stable demand for it
  • It can generate attractive returns while making a social impact
  • Value-add investments can increase the chances of a profit

Stable Demand and Lower Vacancy Rates

Workforce housing caters to a substantial and often underserved segment of the market. This consistent demand translates to lower vacancy rates for workforce housing properties. 

While no investment is “recession-proof”, this slice of real estate tends to be less susceptible to economic downturns as the demand for workforce housing remains constant. This helps to ensure a more stable occupancy rate compared to luxury or high-end real estate options.

Attractive Returns with Social Impact

Investing in workforce housing offers the dual benefit of financial returns and positive social impact. 

Properties in this segment often yield attractive returns due to their lower vacancy rates and stable rental income. By providing quality housing for middle-income families, investors contribute to the community’s well-being.

Opportunity for Value-Add Investments

Value-add properties benefit from upgrades or renovations that enhance the living experience without drastically increasing rental costs. By making targeted improvements, Colony Hills Capital has been able to transform many properties over the years, leading to:

  • Improved tenant retention
  • Improved chances of profiting on the sale of the property

By strategically investing in these properties, we can create a win-win scenario where both investors and tenants benefit from the enhancements made to the property.

Risks of Investing in Workforce Housing

While workforce housing brings many benefits, it’s not risk-free. The top risks of investing in workforce housing are:

  • Market and economic fluctuations: While workforce housing often shows resilience, it is not immune to broader market and economic fluctuations. Changes in the job market, especially in sectors employing middle-income workers, can impact the demand and rental rates for these properties. This makes choosing the right market to invest in critical.
  • Maintenance and operational costs: Workforce housing properties, particularly older ones, may require significant maintenance and renovations to remain attractive and functional. Additionally, effective property management is crucial to maintaining occupancy rates and tenant satisfaction. That’s why it’s important to invest with an experienced firm.
  • Regulatory and zoning changes: Real estate investments are subject to local regulations and zoning laws, which can change and impact property value and operation.

Is Workforce Housing Recession-Proof?

While no investment is entirely recession-proof, workforce housing often demonstrates resilience in economic downturns. 

This resilience stems from the fact that people will always desire quality housing for an affordable price. During economic downturns, there is a tendency for a shift in housing demand towards more affordable options as well should renters downsize from luxury options. 

Despite these advantages, it’s important to recognize that local economic factors and property management also play a significant role in determining the impact of a recession on specific properties. That’s why investing with the right firm is important so that you invest in the right markets alongside an experienced team.

How to Invest in Workforce Housing

Interested in adding multifamily workforce housing to your portfolio?

At Colony Hills Capital, we specialize in managing multifamily real estate syndication deals and multifamily property funds. If you’re ready to reap the many benefits of investing in workforce housing then take the next step to invest in our portfolio of multifamily properties: 

Catalyst Fund III by Colony Hills Capital.

Download the free investor kit to learn more.

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