If you’ve been watching the news, you’ve noticed multifamily markets are running hot this year, making them a desirable place to invest if you have the capital. But what has brought them into the limelight, and how can you take advantage of this opportunity?
As you’re probably aware, the housing market, and particularly commercial real estate, have gained traction over the past decade. Particularly in recent years, prices have skyrocketed across the nation and residential sellers have dominated the markets, making it increasingly challenging for first-home buyers and the working class to afford to buy a property.
This is good news for multifamily markets across the nation, as well as those who plan to invest in them. If you’re a veteran investor or new to multifamily real estate, this guide will show you what to look out for and give you some ideas of where to start. The information in this article is designed to make your investment decisions easy and effective. Read on to discover some of the best multi-family real estate markets for investment in 2022.
What Makes Multifamily A Desirable Asset Class?
Everybody needs a safe place to live and a roof over their head. However, not everybody can afford a home, meaning affordable rental housing is a critical part of the real estate market. Ongoing and increasing demand for multifamily properties is one key aspect that makes the asset class so desirable.
In terms of property management, a series of ten units in the same apartment complex is more manageable and time effective to operate than ten single-family rental properties across ten sites. In addition, the risk of a high vacancy rate is less financially damaging to an investor than a vacant single-family rental property.
During the economic instability caused by the Covid-19 Pandemic, multifamily asset value and demand either remained stable or, in the case of many markets across the country, dramatically increased from 2020-2022. A decrease in population migration, massive influx of consumer spending and forced quarantine made multifamily a sure option for many investors.
How Does Location Affect Multifamily Investments?
When you’re looking to invest in residential, commercial, or multifamily markets, you’ll find nuances that indicate whether the market is ripe and primed for a good investment. In particular, if you want to invest in multifamily apartments or condos, here are a few essentials to watch out for.
Population Growth
A city or region experiencing significant growth indicates an increase in renter demand for housing units. This protects an investor from a high vacancy rate and suggests an escalation of average rents year-over-year.
Employment Growth
When a city or region produces plenty of jobs, it supports population growth in the area by attracting individuals to move there, ensuring they have stable income when they do. Additionally, higher job availability helps to keep the unemployment rate to a minimum. More importantly, it indicates that residents earn more money, have the financial backing to pay higher rents, and are less likely to default on rental obligations.
Job Diversity
A city should have a diverse set of employment opportunities and industries available. When evaluating a city, they should not be a ‘One-Horse-Show,’ if you will. For example, if the city’s main and only source of employment is the financial industry and the industry leaves for some reason, you may find yourself owning property in a ghost town. A city or region should have two to three main industries for employment.
Local Development and Construction
If you notice an area undergoing development and construction it can make for an excellent place for future investment. Gentrification usually makes a location more desirable, meaning that assets will appreciate as more people flock to the area.
Market timing is another honorable mention considering you could find the perfect grounds for revenue potential, but the market has limited inventory. It is advised to engage in extensive market research and analysis before investing in multifamily property.
What Are Optimal Multifamily Real Estate Market Conditions?
Rent Growth
Positive rental growth year-over-year is indicative of a growing economy and a population that can afford the asking price of rent. In certain areas, a lack of annual rental growth in the market can signal government-regulated rental ceilings, preventing landlords from increasing rental value and, in turn, profitability. It’s wise for multifamily investors to check local landlord laws.
Increased Demand
When investing in multifamily property, you want to ensure the local demand is present to prevent costly vacancy episodes. Local population and employment growth indicate a likely increase in demand for affordable multifamily housing.
Cash Flow vs Appreciation Markets
There are two types of optimal markets for multifamily real estate investing success: cash flow and appreciation markets. Both are favorable conditions, yet they will help you to achieve different goals. Cash flow markets can assist with short-term goals as it supplements your income, whereas investing in appreciation markets can help you to set yourself up for the future.
If you want to access simple, low-risk multifamily investments in thriving multifamily markets, give Pinto Capital a call today. Our team of multifamily investing experts is here to guide you through each step of the investment process so you can secure your financial future sooner.
Best Multi-family Real Estate Markets In 2022
Hampton Roads
If you’re yet to check out the east coast cash flow markets for your next multifamily investment, Hampton Roads is an excellent place to start. Boasting a splay of gorgeous beaches and thriving industries and high-quality schools, wider Hampton roads is at the ready for multifamily investments.
To begin, the location is phenomenal. With a number of highly rated beaches in the area, Hampton Roads is a hot tourism location, with long-term and short-term vacation rentals locally popular. Hampton Roads is in close proximity to 16 military base camps, and home to over 83,000 active-duty members – not to mention civilian contractors employed regionally.
Economically, Hampton Roads is thriving. The Norfolk and Newport News shipyards employ around 30,000 people, and with a new Amazon fulfillment center recently constructed in 2021, a diverse new range of jobs is attracting incumbents. Additionally, the healthcare, research, and finance industries regularly bring new people to the area.
In 2021, the multifamily markets proved resilient with an above-average asking rent growth of 11.2%, driven by limited supply, higher than expected absorption of new units, and local increases in single-family housing expenses. With 1348 new units delivered in 2021 alone and below-average vacancy rates of 3.3%, Hampton Roads is definitely a sound multifamily investment market to consider.
Phoenix, Arizona
Phoenix is an appreciation market, and in recent years, has continually been a highly sought market for multifamily investment. Its consistent job growth, which totaled 5.66% in 2021 alone, has led to high housing demand in the metropolis.
The market has been especially strong in recent years, with the multifamily market recording its strongest year recorded in 2021. Vacancy rates dropped to 4.3%, marking the fifth consecutive year vacancy figures have tightened. Rent growth has further increased by 20.7% year-over-year, resulting from increased rental demand. The average single-bedroom apartment rental is sitting at $1,547 in 2022.
Transaction volume in the Phoenix market spiked in 2021, predominantly with the sale of large complexes, pushing the price per unit up 30% from 2020 data.
The affordable cost of living and the growing number of jobs in different sectors are just two elements that contribute to the market’s strength. Phoenix is a great option for investors looking for stability and strong returns.
Tampa, Florida
Tampa attracts new residents from across the nation with its year-round gorgeous warm weather, vibrant flora and fauna at every turn and affordable cost of living. So much so that it’s transformed into one of the most productive and cashflowing multifamily markets in the US!
During the twelve months preceding October 2021, Tampa attracted an array of talent and new residents, with 83,700 jobs added to the local economy marking 5.2% growth. This trend is projected to continue as a number of major firms have moved their business headquarters to the area. Despite the influx of new residents, the metro area has maintained a lower unemployment rate than the state average, sitting at 3.9%.
As a result, a range of metrics in Tampa’s multifamily market performed well in 2021, including occupancy, transactions, and rents. Developers and construction teams have added 31,000 new apartment units to the market since 2017. The influx of inventory sparked a major surge in transaction volume, which spiked last year at a decade-long record of $4.6 billion – $2 billion higher than in 2020.
Despite an increase in inventory, occupancy has increased in Tampa during this period to 96.9%. Rent prices have risen 22.6% year-over-year, now sitting at an average of $1,834 and forecast to reach new heights in 2022.
Denver, Colorado
Denver is a strong appreciation market and is fast becoming a tech industry hotspot, driving the market’s median household incomes significantly above national averages. Moreover, the population’s average age sits lower than national averages, swelling the demand for luxury units among high-income young renters. Effectively this has propelled rental increases by 17.1%, to a unit average of $1,796 per month.
During each of the past six years, construction and absorption of new units have been strong, with between 7,000-11,000 new doors added per year. In 2021, vacancy decreased to below 3% as 16,000 units were absorbed over the year.
In the fourth quarter of 2021, Denver posted its highest dollar value in transactions on record. With an influx of foreign and institutional investors penetrating the metro, almost $4.5 billion was transacted across all apartment tiers.
Looking into 2022, a mixture of early COViD-19 job recovery and new positions added to the employment market should see the Denver labor opportunities surpass pre COViD-19 figures by about 50,000. Additionally, clinched local vacancy rates combined with low single-family housing inventory are projected to ignite a 24% two-year rental growth rate for the period ending December 2023. If you’ve considered Colorado as an investment prospect, be sure to check out the opportunities in Denver!
Atlanta, Georgia
Heading down south to the Peach State, Atlanta’s multifamily markets are running hot as an opportunity for a new multifamily real estate investment location, due to strong corporate expansions and population growth. Atlanta’s labor force is trailblazing the national employment growth rate due to recent corporate investments, creating an abundance of new high-paying jobs. Atlanta is also unique in that it is a market that offers both cashflow and appreciation consistently.
Atlanta’s active construction pipeline exceeds over 25,000 doors, with 7,430 completed in the twelve months preceding January 2022, making it one of the hottest multifamily construction markets in the US. Despite new additions to the market, vacancy rates were driven down by in-migration trends from the north in 2021, hitting below 3%. Average asking rents in the area grew 23.5% year-over-year to $1,644 monthly.
For 2022 and beyond, trends are projected to continue as 75,000 jobs are added to the market, and an expected 11,000 new constructions will be completed. If you are looking for a hot multifamily market in the south set for continued growth, Atlanta may be your calling.
Pensacola, Florida
Pensacola is another metropolitan area that has experienced a positive in-migration trend, particularly from New York city-goers looking to escape the high prices of city living. According to US census data, Pensacola’s population increased 13.6% between 2010 and 2020. Even with the influx of residents, the metro’s unemployment rates remained similar to the national average at 4.2%.
In 2021, Pensacola saw the highest hike in unit additions over the five preceding years, with developers constructing 2,140 units. Additionally, 3,164 had been partially completed at the close of the year. Investment activity experienced a significant increase in 2021, with $606 million in assets trading in the area. This figure is up from almost $300 million the previous year.
Despite the development productivity and increase in supply, Pensacola maintained an occupancy rate of 98%. Moreover, the average rent per multifamily unit rate has increased steadily in the past five years. In November 2021, the average rent per unit was up 20.5% year-on-year, sitting at $1472.
While rent growth in Pensacola has been high, it is still affordable relative to other markets. This, combined with the metro’s consistent job growth, makes Pensacola a safe investment for those looking to purchase an apartment building.
San Antonio, Texas
Among the long list of reasons residents are flocking to San Antonio is the affordable cost of living, a booming economy, and a quaint small-town feel coupled with big-city amenities. In the past 12 months, the population has grown 1.31% to over 2.5 million.
New additions to the job market in the area reached 1.6% in the past 12 months and are likely to further expand by 39.6% over the next decade, which is higher than the national average projected at 33.5%.
The multifamily market in San Antonio was affected by the recent global pandemic, yet rent growth remains strong, perched almost 15% above the national average. In 2021, local vacancy rates decreased from 9.6% to 6.3%, driving a year-over-year spike of 13.3% in rental prices. The average local rent for a multifamily unit is $1,157, sitting in a comfortable range for the median household income of $62,335.
Developers have seen shy of 11,000 multifamily property units absorbed into the San Antonio market, with a further 7,265 units under construction at the beginning of 2022. Multifamily investors can take this as a good sign for the future of their investments.
San Diego, California
In the preceding year as we move out of the pandemic, San Diego has been racking up some impressive numbers within the multifamily markets – enough to spark the consideration of any investor seeking the value of capital appreciation. Limited unit availability drove rent growth up 19.3% year-over-year, averaging $2,531 per month. Trends have respectively increased the local property NOIs, which is good news for investors.
During the 12 months preceding March 2022, rental stock grew 1.4%, with approximately 4,400 new constructions added to the market. Renters absorbed over 11,000 new units during the same period, reducing vacancy to only 1.3%. This is among the lowest vacancy rates in the country.
A surge in demand for San Diego multifamily real estate and a recent rise in NOI figures drove sale prices up 8% to an average of $310,000 per unit. Multifamily transaction volume was strong last year, with Phoenix being the only market to close more transactions in any multifamily market across the US.
Moving into 2022, an expected 60,000 new jobs will be created locally, bolstered by 100,000 active duty military, the highest population in the country. An additional 3,000 constructions are to be added to the rental inventory. With the modest recent growth in new rental stock, vacancy levels are projected to constrict further in the coming years.
Summary
Commercial properties are back on the radar for top investors. The multifamily investment property industry has endured remarkably well during the global pandemic, and investor profits have increased due to rising housing prices and rent increases.
With rental units in high demand, Pinto Capital Investments makes the real estate industry accessible for all real estate investors, particularly veterans and active-duty military members. If you want to invest in a flourishing multifamily market without having to undertake intensive research and analysis yourself, get in touch with Pinto Capital today. We believe in empowering you with sound education and guidance, so you can access the lucrative power of multifamily property investing the simple way.
