The real estate market has been a whirlwind over the last few years, with investors facing massive shifts in pricing, competition, financing, and overall market sentiment. Many who were bullish on multifamily real estate just a few years ago have pulled back, citing skyrocketing valuations, compressed cap rates, and intense buyer competition. 

Others who were aggressively buying in 2021 and early 2022 are now struggling as rising interest rates have made refinancing difficult and operating costs have increased.

So, the big question remains: should you buy multifamily real estate right now? Or should you wait for better conditions?

To answer this, we need to analyze where the market has been, where it is now, and what indicators suggest where it might be headed. While some investors are still hesitant, others, including those who previously stepped back from the market, are considering re-entering. 

Understanding the shifts in investor sentiment, financing availability, and market fundamentals will help you determine whether now is the right time for you to invest.

Why Many Investors Pulled Back from Multifamily Investing

Over the past few years, multifamily real estate became one of the hottest investment classes, attracting both experienced operators and first-time investors. From 2015 to early 2022, low interest rates and strong rental growth fueled a surge in acquisitions. 

Investors saw rapid appreciation, cap rate compression, and historically high deal flow. Many were willing to overpay for properties, assuming that rents would continue rising at record rates and that they could refinance at low interest rates down the road.

However, by mid-2022, things began to change. 

Interest rates increased dramatically, making debt more expensive and shrinking investor returns. Suddenly, deals that looked great at 3% interest were impossible to justify at 6% or higher. 

And at the same time, inflation led to rising operating costs, including insurance, property taxes, and maintenance expenses, which further squeezed margins. Many buyers who had entered the market with aggressive underwriting assumptions found themselves in trouble, unable to execute their business plans as expected.

How the Market Has Shifted and Why Some Are Buying Again

The market today is fundamentally different from where it was two years ago. 

While interest rates remain high, property valuations have begun to soften, and investor sentiment has changed significantly. Transaction volume has dropped by as much as 90% in some markets as the gap between what sellers expect and what buyers are willing to pay has widened. 

Many sellers still believe their properties are worth peak market prices, while buyers are underwriting deals based on today’s financing environment, leading to stalled deal flow.

However, some long-term owners who bought their properties at much lower prices are beginning to accept that the market has shifted and are more willing to negotiate. At the same time, many newer owners who purchased properties with floating-rate debt are now facing financial distress. 

As interest rates have risen, so have their mortgage payments, creating situations where properties no longer cash flow. Some of these owners are being forced to sell, leading to opportunities for buyers who have been waiting on the sidelines.

Another major shift is in the supply and demand balance. Over the last several years, a record number of new apartment units have been delivered across the country, particularly in high-growth markets. 

While this has temporarily increased vacancies and slowed rent growth, new development is now slowing down dramatically. The cost of construction has risen, financing for new projects has become more difficult, and developers who planned projects in 2020 and 2021 are now struggling to lease them up. 

As new supply begins to taper off while demand for rental housing continues to increase, we will likely see a return to rent growth in the coming years.

Key Indicators That Suggest Buying Opportunities Are Emerging

If you’re a passive investor looking to re-enter the market, there are several critical factors to watch. 

One of the most important is seller sentiment. 

Over the past year, sellers were largely in a position of strength, holding out for higher prices even as buyers pulled back. However, that dynamic is shifting. Many sellers who have loans maturing in the next 12 to 18 months are realizing that they may not be able to refinance at a reasonable rate. 

If their properties are not producing enough cash flow to justify current valuations, they may have no choice but to sell. When sellers become more motivated, pricing adjusts, creating better opportunities for buyers.

Another key indicator is construction activity. 

While apartment supply has been elevated recently, permitting for new developments has declined significantly. Fewer new units coming to market means that existing properties will face less competition in the future, likely leading to an increase in rental demand and pricing power for landlords.

Additionally, the relationship between cap rates and interest rates is a crucial factor. During the peak of the market, cap rates were so low that investors were taking on excessive risk to justify their purchases. 

As cap rates adjust upward to more realistic levels, buyers who are patient and selective can acquire properties at better pricing and with healthier cash flow potential.

How to Position Yourself for Success in This Market

If you are considering investing in multifamily real estate today, it’s very important to focus on fundamentals rather than speculation. 

Instead of relying on aggressive rent growth assumptions or expecting interest rates to come back down in the near term, investors should look for deals that make financial sense based on current conditions.

One of the most important steps is to build relationships with motivated sellers and brokers who understand the current market realities. Many deals are still overpriced, but those who have access to off-market opportunities or distressed assets may find some of the best deals available in years.

It is also essential to be well-capitalized. Financing remains more challenging than in previous years, and lenders are being more selective about which deals they will fund. Having strong liquidity, working with experienced partners, and structuring deals conservatively will help investors navigate this period of uncertainty.

Final Thoughts: Is Now the Right Time to Buy?

The short answer is that it depends on the deal. 

While the market has not fully bottomed out, we are seeing early signs that the worst may be behind us. Some investors who completely stepped away from buying in recent years are now cautiously looking for opportunities again, recognizing that shifts in sentiment, pricing, and supply dynamics could create strong buying conditions.

If you are waiting for the absolute perfect moment to invest, you may miss out. The best deals are often found when fear is high and competition is low. As sellers become more motivated, financing options evolve, and market fundamentals stabilize, those who are prepared and well-informed will be positioned to make smart acquisitions.

If you are looking to invest in multifamily real estate but want to ensure you are making the right move, consider partnering with experienced operators who can help navigate this evolving market. 

At Nighthawk Equity, we specialize in finding cash-flowing multifamily investments that provide strong returns and long-term stability. Visit NighthawkEquity.com to learn more about our latest opportunities.

To your success,

Michael Blank