The best multifamily markets for multifamily investing are those with high demand for multifamily real estate, coupled with low supply.
That’s pretty straightforward: as an investor, you want to find an area where there is lots of demand for multifamily property (this usually means an area with a high quality of life and good job growth) coupled with a limited supply of your chosen real estate class (often reflected in low vacancy rates).
All other things being equal, an area that meets these criteria is likely to be one that’s attractive for multifamily investment.
In this article, we’ll look at the relevant criteria in more detail, drawing on our own experience in order to analyze the trends that underpin the best areas for multifamily investment. We’ll then list some of the areas which meet these criteria, highlighting attractive areas for multifamily investment right now.
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What to look for in a multifamily investment market?
In this section, we’ll explain some of the key factors which real estate investors consider when analyzing multifamily investment opportunities.
Median property price
The median property price is a pretty straightforward measure of real estate sale prices, and therefore how affordable it is to acquire a property and invest in a given area. Obviously, a high median property price can act as a barrier to entry, both for owner-occupiers (who are more likely to rent or avoid the area) and investors, who need to put up more capital.
Price to rent ratio
Very simply, this is the ratio of real estate prices to annualized rent in a given area. It’s calculated by dividing the median home price by the median annual rent. A low price to rent ratio (high rents and low real estate prices) drives a better return on your capital, and improves cash flows.
It’s important to note that two cities can have an identical price to rent ratio, but have very different affordability profiles. For example, a large city like New York, Boston or Los Angeles might have high rents and real estate prices, whereas a smaller, less popular city might have the same ratio through low rents and low real estate prices.
What price to rent ratio does well is highlighting imbalances, giving investors an opportunity to achieve an attractive return. It’s not a foolproof measure of profitability though—you’ll also need to consider things like property management costs and vacancy rates, which vary from market to market. Interest rates—forecast to rise—will also affect real estate investors’ costs.
It’s worth noting that rentals tend to be smaller than owned real estate, sometimes skewing comparisons between average rents and property prices.
For sale inventory
This statistic allows potential investors to see how active a given market is, by analyzing the number of units listed for sale. A high inventory highlights an area with an active market, where an investor can quickly find rental properties. On the other hand, if there are no properties for sale, it doesn’t matter how attractive an area is.
One factor we’ve highlighted for certain areas below is the volume of multifamily properties that came on the market in the last year—new supply coming onto the market means investors can acquire units more quickly.
Population growth and job growth
Population growth—and specifically job growth—is a hugely valuable predictor of the performance of local investment properties. Growing cities have low vacancy rates, and generally lead to a supply/demand imbalance while real estate supply catches up. This imbalance increases both real estate prices and rents.
By targeting areas with population and job growth, investors can help to fill the gap between supply and demand, and provide high-quality housing to American working families.
Macro trends
When investing in multifamily properties, you’ll also need to consider larger trends underpinning the US real estate market. Will renters return to cities as COVID-19 subsides? Is remote working here to stay? Will rising interest rates make life tougher for first-time buyers and prompt them to rent for longer?
10 Best markets for multifamily investing
In this section, we’ve taken the top ten US areas for sustained (5-year) population growth. We’ve then included the median property price, the price to rent ratio, and the median annual rent (note that median annual rent is calculated for a 2 bedroom unit).
Naturally, multifamily investors will be looking for areas with larger properties and apartment buildings, which are suitable for use as multifamily properties.
Alongside these fundamentals, we’ve then worked in for sale inventory, alongside population growth and job growth (non-farm employment from the Bureau of Labor Statistics).
In this article, we’ve gone to metro area level, but when analyzing this asset class and making investments, we’re much more detailed and precise—we’ll go as specific as census tract or zip code.
Austin, TX
Median property price: $340,000
Price to rent ratio: 22.3
Median annual rent: $1,840
For sale inventory: 8,350
Population growth: 14.6%
Job growth: 7.8
Austin is considered one of the hottest real estate markets in the US, and with tremendous population and job growth, combined with a relatively low inventory (and new supply failing to keep up), it’s not hard to see why. However, the price to rate ratio is at the higher end of markets featured here.
Austin has a very high quality of life and is often considered one of the best places to live in the US, boosted by cultural attractions, warm weather, and a thriving economy. It ranks highly for multifamily construction, with 10,301 new units added in 2021.
Raleigh, NC
Median property price: $292,000
Price to rent ratio: 18.5
Median annual rent: $1,410
For sale inventory: 3,087
Population growth: 11.7%
Job growth: 4.1
Real estate analysts are expecting great things from Raleigh, with significant house price rises forecast. Tech jobs certainly help: Apple announced a new campus in Raleigh’s Research Triangle Park last year, bringing newly-created tech jobs to the area, and this reflects a long-term trend of population growth in the area.
Phoenix, AZ
Median property price: $308,900
Price to rent ratio: 19.0
Median annual rent: $1,470
For sale inventory: 18,189
Population growth: 10.5%
Job growth: 5.6
The Phoenix housing market was in real trouble in 2008-9, with real estate valuations plummeting. In the last 15 years though, there has been a huge resurgence, and the market is facing a shortage of homes for sale. The area is attractive for quality of life, with its warm climate driving population growth across all age groups—and new multifamily homes are springing up, with 9,334 new multifamily units added in 2021.
Statewide, Arizona benefits from very high occupancy rates, a quarter below the national average.
Orlando, FL
Median property price: $262,000
Price to rent ratio: 16.8
Median annual rent: $1,680
For sale inventory: 8,432
Population growth: 10.5
Job growth: 7.7
Orlando is one of three Florida areas to feature in this list, but tops the table in terms of population growth and boasts an enviable price to rent ratio. It’s another very hot market, with local real estate agents reporting many units being sold off-market or attracting offers well above the asking price. Strong job growth is bringing in families though, and a relatively low median property price continues to attract investors. It’s much more affordable than its neighbor Miami, although inventory is considerably tighter.
Las Vegas, NV
Median property price: $305,000
Price to rent ratio: 19.1
Median annual rent: $1,390
For sale inventory: 7,944
Population growth: 10.4%
Job growth: 8.5
Las Vegas experienced an unprecedented rise in real estate prices in 2021, logging a second year of double-digit increases (which have prompted concern that current buyers could be paying over the odds). Local developers have received the message loud and clear, and a healthy supply of new units is starting to come through. While it’s considered an established market for multifamily units, Las Vegas still has a way to go.
Jacksonville, FL
Median property price: $245,000
Price to rent ratio: 14.9
Median annual rent: $1,400
For sale inventory: 6,418
Population growth: 9.8
Job growth: 4.6
Jacksonville boasts a relatively low price to rent ratio, and has built up a reputation as an attractive place for turnkey real estate investments. Jobs are growing rapidly, and rents are increasing in turn. Jacksonville has a reputation as an attractive place to live, with above-average public schools and access to nature and beaches, attracting families who seek out multifamily housing.
Charlotte, NC
Median property price: $255,000
Price to rent ratio: 16.5
Median annual rent: 1,570
For sale inventory: 6,804
Population growth: 9.6%
Job growth: 2.8
The Charlotte metro area is the second-largest financial center in the US, and New Yorkers make up the largest part of the 143,000 new residents who arrived in Charlotte over the last decade. 27% of the population is between 20-39, millennials with a high propensity to rent, and a mix of white and blue-collar jobs attract a diverse range of people. Despite steady completions, that population growth is likely to provide ongoing support on rents.
Dallas, TX
Median property price: $225,550
Price to rent ratio: 16.0
Median annual rent: $1,930
For sale inventory: 19,892
Population growth: 9.3%
Job growth: 5.6
Dallas’s thriving economy is pulling in new residents, attracting more than a million new arrivals since 2010. And while other parts of the country are still struggling to recover, Dallas’s job growth is steady, contributing to a below-average unemployment rate. However, Dallas remains surprisingly affordable—cost of living is low, and there is no state income tax.
San Antonio, TX
Median property price: $175,000
Price to rent ratio: 13.3
Median annual rent: $1,370
For sale inventory: 8,415
Population growth: 8.9%
Job growth: 4.7
The National Association of Realtors called San Antonio a “hidden gem”, although it’s worth noting that rising property prices are putting a strain on affordability. However, San Antonio benefits from a price to rent ratio of just 13.3, and local experts expect continued real estate price growth. San Antonio also outperforms other Texas cities in terms of the proportion of jobs paying six-figure salaries, with IT, financial services, and advanced manufacturing employers drawing in employees.
Tampa, FL
Median property price: $229,900
Price to rent ratio: 18.0
Median annual rent: $1,840
For sale inventory: 10,938
Population growth: 8.7%
Job growth: 5.3
Tampa is an extremely active real estate market, but retains a relatively good level of affordability compared to its neighbors in this list—Tampa real estate is one of the most affordable in Florida. The pandemic barely put a dent in the market, but Tampa is definitely a seller’s market, with notoriously low (but rising) inventory. In certain areas that means huge growth in rents—some areas have logged increases above 20% year on year.
Frequently asked questions about multifamily investment markets
1) Where can I invest in multi-family 2022?
The above list is a useful starting point, but is just indicative. It’s important to look for the fundamentals; chiefly population and job growth which create demand, coupled with a shortage of multi-family properties alongside a low price to rent ratio.
As well as investing directly, you can also seek out one of the best multifamily investment companies to support you. Investing via a private equity investment company comes with several advantages, including specialist expertise, preferred returns, and favorable tax treatment.
2) How do you determine if multifamily is a good investment?
Relative to other forms of real estate investing such as commercial real estate, multifamily can provide more stable income and reduced risk, ease of scaling, and the ability to support local communities with affordable, high-quality housing.
Whether or not a given multifamily project is a good investment for you depends on many factors, such as your risk appetite, expertise, and access to markets. For more information, check out our article on multifamily investing benefits, as well as a comparison between single and multifamily investments.
3) What is a good cap rate for multifamily 2021?
This is more of a trick question as the “best cap rate” for an investor is the one that matches your investment profile. We usually divide this into three categories:
- High Cash Flow investments, Limited Equity Growth – these markets are marked by higher than average vacncy rates, lower property values and supply/demand tilts towards more supply. These are cateogired by weaker than average job markets. GOOD assets can be in a great location and have higher than average cash flows (We categorize this as between 6%-9+%) but these deals are not ony harde to find but often times have lower upside in appreciation.
- Medium Cash Flow, Medium to High Equity Growth – Our favorite spot to be in: cash flows in the 4-6% range with strong equity upside that push the annualized return on the investment to 14-18% (when considering cash flow + appreciation).
- Little to no Cash flow, High Equity Growth – Markets like San Francisco, San Diego, New York, etc in pockets of high demand properties typically have very little cash flow associarted with them but can reach annualized appreciation rates fo 12-20% depending on when you purchase and where we’re at in the cycle.
*****Keep in mind the above are just the three tiers of investment in which we like to categorize things. The RE industry also categorizes investments on a risk adjusted and return basis under the following categories:
- Core
- Core+
- Value-Add
- Opportunstic.
4) How do banks value multifamily property?
Banks’ main concern is resale value—they’ll look at comparable properties in the same area and consider what price they were able to attract, and also take a view on how resilient a given market is. They will also consider affordability—in this case, the rental income you expect to be able to generate, in relation to your expected costs.
Conclusion
Our goal is to find the next up-and-coming neighborhoods, primed for significant appreciation. We look for neighborhoods within metro areas that have the attributes required to outperform, using expert knowledge alongside cutting-edge technologies to get this insight.
The article above provides a good summary of some key markets, but it’s really just the tip of the iceberg: our expertise in underwriting, construction, and asset management allows us to turn underperforming properties into top-performing assets; delivering highly profitable investments poised to perform over the long term. Larger metros have several different submarkets that perform differently all with their own layers of nuance. Local expertise and in-depth research accompanies by a solid business model and strong, experienced real estate team ultimately determine success.
If you want to find out more, or are looking for the right multifamily investment market to invest in, or a more in depth conversation as to how we pick our markets, get in touch now and we’ll provide more information.
