Jacksonville Multifamily: Your 2024 Outlook
While falling rents are likely to put off many investors, there are hidden gems to be found in Jacksonville's multifamily market in 2024.
Investing in real estate, especially multifamily properties, can seem complex. But, it's all about understanding the basics: how much people pay in rent, how many new buildings are coming up, whether these buildings are filling up, and what all this means for you as an investor.
I'm here to walk you through these concepts, targeted specifically at Jacksonville's market. It's a great case study for anyone looking to dive into multifamily investments.
Jacksonville's Multifamily Fundamentals
Rent Trends
Let's start with rent. Right now, in Jacksonville, the average rent is $1,510 a month, according to Marcus & Millichap. But here's something interesting: Rents have actually gone down by 3.8% over the past year. While rent declines isn’t exactly a shocking story for 2023, it is a sizable drop, especially when compared to the national rent growth of 1.5% during the same period.
So, what does this mean for you? If you're looking at Jacksonville for investing, this dip in rent growth might be worrying. It suggests that, unlike in other places, people in Jacksonville are paying less for their rentals than they used to. This could be important when you're thinking about whether Jacksonville is the right place for your investment dollars.
Construction Pipeline
Now, let's talk about what's being built. As of December 2023, Jacksonville has 14,945 apartment units under construction. That's a 12.6% bump in the number of places for people to live, compared to what's already here.
Most of these new units are fancy, luxury places. In 2024, we're expecting 7,100 of these units to be ready for people to move into, which will grow our current housing stock by 5.1%. A big chunk of this — around 40% — is happening on the Southside. That's a lot of new homes in one area. Unless you have a truly compelling reason to invest here, I'd suggest looking in a different submarket.
Occupancy and Vacancy
With all these new apartments, you might wonder, are they all filling up? Well, back in December 2021, about 95.5% of apartments in Jacksonville were occupied. By December 2023, this dropped to 92%. More units, but fewer people filling them. And it looks like we might see even a bit more empty space next year, with vacancy expected to go up slightly, thanks to all those new units.
Market Cap Rates and Investment Considerations
Cap rates have been on the rise, from 4.1% in the third quarter of 2022 to 5.57% only a year later. If you're not familiar, a cap rate is just a way to measure how much bang you get for your buck when you invest.
A higher cap rate means more potential income, but it also means there's more risk. And with fewer deals happening here than in other Florida cities, it's a sign that investors are a bit wary.
Investment Strategies in the Current Market
Given all this, what's a smart move? First, if you're borrowing money, make sure you're getting a good deal on your loan. With everything going on, you don't want financing to be your downfall. (Don't forget: We are a game changer here.)
Also, keep an eye on insurance rates. They've been skyrocketing especially in Florida, and that can eat into your profits fast.
Lastly, just because a property is cheap doesn't mean it's worth it. With the market like it is, some discounts might not be the bargains they seem.
Class C Properties: A Silver Lining?
There's an interesting trend with Class C properties — these are the less fancy, more affordable apartments. In 2023, rents for these places went up by about 6%, according to that Marcus & Millichap report. This might be a hint that investors and renters are looking more at these kinds of properties.
While there are plenty of Class C properties available, as more people get interested, prices could go up. It's a bit of a balancing act, though. Higher prices mean potentially more income, but also more risk if the market turns on this subsector.
See the Big Picture
Understanding the basics of the multifamily market — things like rent prices, what's being built, and how full these buildings are — is crucial, especially in places like Jacksonville. It's a lot, but it's doable, and it's important if you're thinking about investing.
Jacksonville's market right now shows us there are both challenges and opportunities. It's not just about finding a cheap property; it's about seeing the whole picture. That includes watching out for how many new apartments are coming up, how that changes occupancy rates, and what kind of properties are in demand. You must have a clear investment strategy.
So, as you dive into multifamily investment, remember: it's about more than just the numbers. It's about understanding what those numbers tell you about the market and making smart choices based on that. Jacksonville's current situation can teach us a lot about navigating these waters. Let's learn from it and make informed decisions that lead to successful investments.