What are the best markets for multifamily? Read on for insight around how to choose a market and get my list of 12 Hot Spots for Apartment Building Investing!
All multifamily markets are NOT created equal.
But what should you be thinking about as you decide what cities to look at for syndication deals?
And what factors impact supply and demand?
In this week’s video blog, I share with you my top markets for multifamily investing!
I share my methodology for choosing the best places to invest and discuss the current trends driving rental demand.
You’ll get my list of the Top 12 Hot Spots for Apartment Building Investing and learn how to make decisions about where to invest.
Watch the video below (or keep reading).
How to Choose a Market
What is our methodology for choosing the top multifamily markets? We are looking for locations at the intersection of employment growth and yield.
Cities like San Francisco and Manhattan are growing like crazy but returns are very low. If you’re investing for capital appreciation and prepared to make a long-term commitment, these are reliable places to put your money. But they don’t work for us because we care about cashflow.
On the other extreme are markets like Nashville where growth is tempered, but the cashflow is insane. This is not a bad place to invest, and in fact, we have a few properties there. But best case, you want to invest in markets with a combination of solid growth AND good returns.
Trends Driving Rental Demand
What is driving high returns in top markets? Supply and demand, baby. There is a shortage of class B and C properties. And developers aren’t building more because it’s too expensive.
One factor driving this growing demand is millennials. The majority of millennials rent (rather than own) in part because they don’t make as much money as previous generations and in part because they lived through the recession. Many watched their parents lose their homes to foreclosure and choose to rent to avoid the risk.
Where is the demand for affordable housing growing the fastest? In general, the US population is moving south. As Baby Boomers retire, they are leaving northern states and heading for milder weather in the Sunbelt.
A List of Top Markets
So, what multifamily markets currently live in that sweet spot where growth and yield meet? Our top picks are:
1. Jacksonville/Orlando, FL
2. Huntsville/Birmingham, AL
3. Raleigh/Charlotte, NC
4. Atlanta, GA
5. Austin/San Antonio/Dallas, TX
6. Phoenix, AZ
7. Salt Lake City, UT
8. Denver, CO
9. Indianapolis, IN
10. Columbus, OH
11. Memphis/Chattanooga, TN
12. El Paso, TX
Exceptions to the Rule
This is not to say that you should disregard deals outside these markets. If you run into an opportunity, explore it fully. Just do you homework to understand the demographics of the market and its potential for growth.
I would also caution you against markets with a population of less than 300K. These locations are tough from a management perspective, as it is challenging to find and replace property managers in such small communities.
Final Thoughts
As you decide where to look for multifamily deals, do your research around growth and returns. And focus on the places where the two overlap.
Pay attention to the trends driving rental demand:
· Population moving south
· Millennials renting
Then study their impact on the markets you are considering.
And finally, use our list of top markets to guide your search for deals—but don’t reject deals out of hand simply because the city didn’t make the list.
Want to know more about multifamily and how it compares to investing in the stock market? Download our Special Report: What’s the Best Investment? Stocks or Real Estate to learn more!
