5 Best Multifamily Investment Markets of 2023 by Growing Property Values
Diverse job markets, strong population growth, and favorable locations make these markets well worth exploring for apartment investors.
In 2021 and the first part of 2022, the big story for multifamily investment was that of skyrocketing rent growth. Rents kept climbing and climbing after the initial impact of the pandemic wore off, and they seemed unstoppable.
But rents have begun to decelerate significantly in many markets — with growth even going negative on a monthly basis toward the end of last year. However, not all is lost: Apartment buildings are remarkably recession resistant, and, even despite lagging rents, property values seem to be faring better than ever.
In recent years, multifamily property values have risen significantly in many markets, creating excellent opportunities for real estate investors. The table below showcases our pick for the top five multifamily investment markets of 2023, ranked by growth in sales price on a per-unit basis.
Rank | Market | Sale Price Growth* |
|---|---|---|
1 | Huntsville | 90% |
2 | White Plains | 50% |
3 | Tulsa | 44% |
4 | Reno | 41% |
5 | Knoxville | 40% |
* This data was calculated by examining multifamily transactions publicly listed in county records between 2021 and 2022.
Even with the growth in pricing, the gap between the seller’s asking price and the amount many buyers are willing to pay is still wide. This can make it difficult for potential investors to assess their return on investment and decide which markets are the most attractive for multifamily investments in 2023. Further, if you’re looking to finance an apartment building purchase, it’s getting more expensive to borrow.
To help with this analysis, let’s have a look at the top five multifamily investment markets of 2023 in more detail.
#5 Knoxville
Knoxville, Tennessee, comes in fifth on our list. Public records indicate that sales prices have shot up 40% between 2021 and 2022 on a per-unit basis, and there’s still room to grow. Even better, rents have skyrocketed in the past year, too. But what is driving the market?
One key driver of this growth has been the city's strong job market, which has attracted a diverse range of industries and workers to the area. This, in turn, has led to an increase in demand for rental properties.
Another factor contributing to the success of the multifamily market in Knoxville is the city's relatively low cost of living compared to other markets. This has made it an appealing destination for both renters and investors, as it allows for higher rental yields on multifamily properties. Additionally, the city's location in the eastern part of the state puts it within driving distance of major cities such as Nashville and Chattanooga, which can further boost demand for rental properties. Overall, the combination of a strong job market, low cost of living, and strategic location make Knoxville a promising market for multifamily investors.
#4 Reno
In fourth place on our list, Reno, Nevada, has a lot to offer investors. While rent growth has started to slow by some reports, the market’s fundamentals remain solid — evidenced by closed sales in 2022 averaging around 41% north of 2021’s transactions.
A lot of this growth has largely been driven by the city’s growing job market and population. Reno has experienced steady job growth since 2013, supported by the city’s growing technology and manufacturing sector, and its population has grown by 8.9% in the last decade. All of this combined has created an enormous level of multifamily demand across the metro — which has, in turn, put significant pressure on rent growth and property values.
#3 Tulsa
You may not think it from the outside, but Tulsa, Oklahoma, has a robust and rapidly expanding multifamily market. The metro’s diverse economy benefits from the presence of many energy, aerospace, and technology companies. As these employers have expanded, the city has naturally benefited from a large influx of professionals in these sectors, but it hasn’t stopped there. Tulsa has also seen a boost in healthcare, education, and finance workers move to the area.
Another factor contributing to the success of the multifamily market in Tulsa is the city's strategic location. Located in the eastern part of the state, Tulsa is within driving distance of major cities such as Oklahoma City and Dallas, which can further boost demand for rental properties. Additionally, the city is home to a number of colleges and universities, which has also driven demand for multifamily in the student housing sector.
#2 White Plains
In second place, White Plains, New York is a vibrant city located in the heart of Westchester County, just a short train ride away from Manhattan. It has become an attractive destination for multifamily investors looking to capitalize on housing demand in the region — at a far lower price point than in the nearby boroughs of New York City. Sales prices closed in the market jumped by an incredible 50% per unit in 2022.
One multifamily housing demand driver in White Plains is the city's strong job market. Major employers in the area include Fortune 500 companies such as IBM and Verizon, as well as healthcare providers such as Montefiore Medical Center and NewYork-Presbyterian Hospital’s locations. These companies and institutions have attracted and sustained a range of professionals in the area, consequently keeping demand for apartments strong.
Another factor contributing to the success of the multifamily market in White Plains is the city's location in the Lower Hudson Valley region. For those who need to live in the greater New York City area but are seeking a more affordable alternative to living in the city itself, White Plains can be incredibly attractive. The city is easily accessible to Manhattan via the Metro-North Railroad, making it a rather convenient choice for commuters.
#1 Huntsville
Our number one market for multifamily investment in 2023 is Huntsville, Alabama. A city with a rich history and a bright future, Huntsville also has a rapidly expanding multifamily market. One factor driving this growth is the city's strong job market, which has attracted a range of industries and workers to the area. Huntsville’s population has expanded at a rapid pace, up 11.2% between 2010 and 2020.
Major employers in Huntsville include defense contractors such as Boeing and Lockheed Martin, as well as healthcare providers such as Crestwood Medical Center and Huntsville Hospital. The city is also home to a number of technology and engineering firms, making it a hub for these industries in the region.
Another factor contributing to the success of the multifamily market in Huntsville is the city's location in the Tennessee Valley region. Located in the northern part of the state, Huntsville is within driving distance of major cities such as Nashville and Birmingham. Overall, the combination of a strong job market, population growth, and strategic location have led Huntsville’s multifamily market to perform, with rents and pricing both soaring.
In Conclusion
The five multifamily markets with the fastest growing sale prices per unit last year are certainly ones to keep an eye on. Of course, it’s important to note that previous growth in property values doesn’t mean anything if that growth doesn’t continue — but each of the markets on our list has solid underlying multifamily market fundamentals that should keep them resilient, even in the face of an economic downturn.
Naturally, don’t take my word for it — you’ve got to do your own research before pulling the trigger on any investment. If you’re planning an apartment building acquisition, we can match you with the best lenders to get you the best loan terms out there — whether your best option is a Fannie Mae Small Loan, a traditional bank loan, or anything in between. Fill in the form below, and we’ll get back to you with quotes at no cost.
Related Questions
What are the top 5 multifamily investment markets of 2023?
The top 5 multifamily investment markets of 2023 are San Jose, New York, Tampa, Miami, and Charlotte. According to this report from Yardi Matrix, San Jose is projected to have the highest rent growth in 2023 at 4.9%, followed by New York, Tampa, Miami, and Charlotte at 3.7%, 3.7%, 3.7%, and 3.6%, respectively.
What factors should investors consider when evaluating multifamily investment markets?
Investors should consider multiple factors when evaluating multifamily investment markets, such as the availability of properties, pricing, and potential return on investment. Many investors purchase properties close to home, but this can be limiting. It is beneficial to scour multiple markets in multiple regions in search of the ideal environment to chase investment goals. It is important to understand metrics such as cap rate, cash-on-cash return, and internal rate of return (IRR) when forming return on investment goals. Additionally, it is important to consider the equity multiple when multiple investors are involved in a deal.
What are the benefits of investing in multifamily properties?
Investing in multifamily properties can provide a number of benefits, including reliable monthly cash flow from renters, potential for high investment returns, and the ability to take advantage of compounding returns. Additionally, multifamily properties are relatively low risk, and can help you diversify your investment portfolio.
For example, if you buy an apartment complex for $1 million, you may only need to shell out about $200,000 with a great loan. You could then sell it five years later for $1.2 million, resulting in a great return of $400,000.
Using your proceeds, you could invest again in two multifamily properties at similar amounts, and if that appreciates in a similar way, you could walk away with $800,000 after a conservative gain on a sale.
The earlier you start investing in multifamily, the more wealth you’ll have in the long run due to the power of compounding returns.
What are the risks associated with investing in multifamily properties?
The risks associated with investing in multifamily properties include expensive purchase costs, rising construction costs, construction delays, and the possibility that the renovation work may not be enough to get the desired investment outcome.
Buying multifamily properties is significantly more expensive than buying single-family homes, therefore, it is usually hard to enter the market as a first-time real estate investor. While banks are usually eager to provide loans, buyers should be able to come with around a 20% downpayment, depending on the real estate market or the size of the property. Source
Construction costs have risen dramatically over the past few years, impacting both ground-up development projects and renovation work. Make sure you do your research and plan ahead with a strong budget before beginning apartment renovations to avoid any nasty surprises. Source
Construction delays are also an unfortunate fact of life. Due to supply chain issues, some cannot be avoided — so it may be best to take a very conservative approach in terms of your project timeline. Don’t assume you will have rents in place the month after your capital improvements are scheduled to wrap up. Source
Finally, your renovation work may simply not be enough to get the investment outcome you’re looking for. You may invest a lot of capital to add the highest-end luxury amenities to a property built in the 1980s — but if potential renters are looking for a newer building, you may not see much of an uptick in occupancy or rental revenue. Source
What are the current trends in multifamily property values?
The multifamily sector has long been regarded as one of the safest investment options in times of uncertainty. The persistent housing shortage and the rapidly rising cost of owning a home are driving healthy property fundamentals, making multifamily the desired investment option.
According to Freddie Mac®’s Multifamily Apartment Investment Market Index, finding attractive investment opportunities this year may be more difficult than it was in 2021, with the index decreasing 17.9% on an annual basis.
Rent rates continued to decelerate in September, falling 150 basis points to a gain of 9.4% year-over-year, according to Yardi Matrix research. This comes after the average U.S. asking rent dropped $1 to $1,718 in August, and growth slowed by 170 basis points on an annual basis, falling to 10.9%. Despite flattening rent growth, national asking rents are still at record highs, and occupancy rates have been hovering around 96% since June 2021, Yardi Matrix concluded.
The five multifamily markets with the fastest growing sale prices per unit last year are certainly ones to keep an eye on. Of course, it’s important to note that previous growth in property values doesn’t mean anything if that growth doesn’t continue — but each of the markets on our list has solid underlying multifamily market fundamentals that should keep them resilient, even in the face of an economic downturn.
What are the best strategies for investing in multifamily properties?
The best strategies for investing in multifamily properties depend on your goals and financial situation. According to this article, the top 5 multifamily exit strategies are:
- Buy & Hold
- 1031 Exchange
- Sell to an Investor
- Sell to an Owner-Occupant
- Refinance & Pull Cash Out
When it comes to financing, this article suggests that first-time multifamily investors should consider leveraging financing options to maximize their returns. Some of the financing options available include:
- Conventional Loans
- FHA Loans
- Portfolio Loans
- Bridge Loans
- Crowdfunding