Moses Kagan on Real Estate

Another reason I love multifamily: fragmentation

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This observation comes from my friend Casey, who is also in the apartment business. (But, if I’ve somehow screwed it up, the blame is mine!).

The Census Bureau estimates we have roughly 40,000,000 rental households in the United States.

Multifamily Executive, a trade mag, estimates that the largest owner of multifamily units in the country, Boston Capital, owns 157,000 units, or .04% of the total. The top five owners together own around 600,000 units, or 1.5% of the total.

Let’s say for the sake of argument that the average rent across all those units in the whole country is $750 / month. That means the rental housing market is roughly a $360 billion / year business. And the single largest player takes $118 million / year.

Can you think of another market that’s so big and so fragmented? In search engines, Google controls the whole market. In social networking, Facebook does. In softdrinks, the three biggest players (Coke, Pepsi, and Dr. Pepper Snapple) control 80+% of the market. In any of these markets, if you started from zero, you would have to fight dominant competitors to build a large business.

Not so in real estate. You, an individual, could start buying tomorrow and, if you got good enough at attracting capital, acquiring properties and managing them, create a portfolio of 50,000 or 100,000 units, placing you among the largest owners in the country. And you could do it while the other big players continue to build their businesses. There’s plenty of room for everyone!

And plenty of people have done exactly that… many of the companies on that Multifamily Executive list of the biggest owners in the country are run by the people who started them.┬áThat possibility just fills me with optimism about the business. There’s essentially no limit to how far you can go in it besides your ability to work really, really hard.


Written by mjkagan

10/18/2012 at 6:49 am

Posted in Buying

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