What Are the Best Cities for Multifamily Investing in 2019?
Though some are concerned about an increased supply of properties on the market, as well as potential increases in interest rates, now is still an incredible time to purchase a multifamily property.Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
The 6 Best Cities to Invest in Apartment Buildings in 2019
Check out our 2022 ranking of the top multifamily markets for investments.
2018 was a great year for apartment investing — and the first half of 2019 hasn’t been too bad, either. Though some are concerned about an increased supply of properties on the market, as well as potential increases in interest rates, now is still an incredible time to purchase a multifamily property. To help give you some ideas about where you might like to invest, we’ve listed some of the best markets in the U.S. to invest in apartment buildings in 2019 and beyond.
1. Minneapolis - St. Paul
Employment Growth: 1.5%
Construction: 4,900- 6,700 units (reports differ)
Minneapolis- St. Paul is considered one of the top multifamily markets in the U.S..-- and for a good reason. Unemployment is sitting at an incredibly low 2.8% (and dropping), while the area’s labor force has increased by nearly 5% in the last few years. In fact, over the last 5 years, the area has added a staggering 130,000 jobs, attracting workforce talent from other parts of Minnesota, as well as from neighboring states, like Illinois. And, over the last 4 years, approximately 42,200 new households have been added to the market, with another 17,500 households expected to form during 2019. Coupled with rising housing prices, this population influx should keep rental demand high in both urban and suburban markets.
2. San Diego, CA
Employment Growth: 1.5%
Construction: 3,220 units
Southern California is one of the hottest multifamily and commercial real estate markets in the U.S., but not all areas are ideal for investors, especially those who aren’t already established in the market. Fortunately, San Diego presents viable opportunities for both first-time and experienced apartment buyers. The San Diego market continues to add jobs, with more than 20,000 jobs added between March 2018 and March 2019. While unemployment did increase slightly over that period, overall, it’s still well below long-term area averages. Plus, overall employment is anticipated to increase by 1.6% through 2019, so the area’s small uptick in unemployment shouldn’t be too much of a concern. Demand for rental housing remains high, due to the aforementioned employment factors, as well as the lack of affordability of single-family homes in the area.
3. Orlando, FL
Employment Growth: 4.9%
Construction: 6,200 units
Since Disney World opened in the 1970s, tourism has been a major pillar of Orlando’s economy, and the area’s tourism industry seems to only keep growing. In fact, a record 75 million people visited Orlando in 2018, a factor that certainly contributed to the area adding more than 50,000 jobs that year. Like its tourism sector, Orlando’s job market is expected to continue growing at a healthy pace, with growth of 1.6% per year expected through 2022 (compared with 0.6% growth for the U.S. as a whole). Right now, there are 12,400 units currently underway in Orlando, but despite this, demand is expected to remain strong for several years to come.
4. Knoxville, TN
Employment Growth: 2.1%
Construction: 1,100 units
Knoxville, Tennessee may not be the flashiest real estate market on this list, but it can still provide a wide variety of opportunities for multifamily investors. As the third-largest city in the state, Knoxville hosts the headquarters of multiple regional and national companies, as well as being the home of the University of Tennessee. Construction activity in the Knoxville area is slow, and, with a 96.6% apartment occupancy rate, demand for quality housing remains high. While employment growth hasn’t been particularly high either, a new automotive parts plant and a slated airport expansion should bolster the local job market in the coming 24-36 months.
5. Tampa- St. Petersburg, FL
Employment Growth: 2.3%
Construction: 3,500 units
Like Orlando, the Tampa-St. Petersburg area is one of the fastest-growing economies in Florida, having added approximately 10,300 jobs between February 2018 and February 2019. Economic estimates suggest that this trend of job growth is likely to continue, especially due to the fact that several major firms have recently relocated their headquarters to the area. In addition to the influx of corporate activity, Tampa’s hospitality and tourism market remain strong, with nearly 6,000 jobs being added to that sector over the last 12 months. And, while a fair number of units will be added to the market in 2019, demand remains high, and rents are expected to increase by 3.3% by the year’s end.
6. Phoenix, AZ
Employment Growth: 3.8%
Construction: 10,600 units
The Phoenix area is another one of the hottest multifamily markets in the nation, with more than 60,000 jobs added between Q1 2018 and Q1 2019. While unemployment did rise slightly over the same period, the vast increase in jobs has kept area housing demand strong. In fact, nearly 3,000 units were absorbed in 2019, while the vacancy rate dropped to 4.7%. Rent growth in Phoenix also remains high, having increased 8.1% over the last 12 months, with asking rents in some submarkets increasing as much as 10.4%. All of this bodes well for multifamily investors looking to purchase an apartment building (or buildings) in the area.
Minneapolis - St. Paul
4,900- 6,700 units
San Diego, CA
Tampa- St. Petersburg, FL
What are the most profitable cities for multifamily investing?
The most profitable cities for multifamily investing depend on a variety of factors, such as employment growth, construction, rent, and vacancy rates. According to Multifamily.loans, the 6 best cities to invest in apartment buildings in 2019 are Minneapolis-St. Paul, San Diego, CA, Orlando, FL, Knoxville, TN, Tampa-St. Petersburg, FL, and Phoenix, AZ.
In Minneapolis-St. Paul, employment growth is 1.5%, construction is 4,900-6,700 units, rent is +5.7%, and vacancy is -0.50%. In San Diego, CA, employment growth is 1.5%, construction is 3,220 units, rent is +5.7%, and vacancy is +0.10%. In Orlando, FL, employment growth is 4.9%, construction is 6,200 units, rent is +7.8%, and vacancy is +0.60%. In Knoxville, TN, employment growth is 2.1%, construction is 1,100 units, rent is +4.0%, and vacancy is -0.60%. In Tampa-St. Petersburg, FL, employment growth is 2.3%, construction is 3,500 units, rent is +7.3%, and vacancy is -0.60%. Finally, in Phoenix, AZ, employment growth is 3.8%, construction is 10,600 units, rent is +6.2%, and vacancy is +0.20%.
These cities are all great options for multifamily investing, as they have strong employment growth, construction, rent, and vacancy rates. However, it is important to do your own research and consider other factors, such as loan terms, before making an investment.
What are the best markets for multifamily real estate investments?
The best markets for multifamily real estate investments in 2019 and beyond are:
- New York City, NY
- Los Angeles, CA
- San Francisco, CA
- Boston, MA
- Washington, DC
For 2023, the five markets with the fastest growing sale prices per unit are:
- San Francisco, CA
- Los Angeles, CA
- New York City, NY
- Boston, MA
- Washington, DC
For more information, check out What Are the Best Cities for Multifamily Investing? and 5 Best Multifamily Investment Markets of 2023 by Growing Property Values.
If you're looking for financing for your multifamily investment, we can match you with the best lenders to get you the best loan terms out there. Fill in the form on our website and we’ll get back to you with quotes at no cost.
What are the most important factors to consider when investing in multifamily properties?
The most important factors to consider when investing in multifamily properties are your investment objectives, the type of property you want to purchase, how you will handle the everyday operations of the property, and the market you choose to invest in.
Your investment objectives should be clearly defined before you start searching for a desirable apartment building. Multifamily is typically loosely defined within the industry as a property with five or more units, but it can also encompass duplexes, triplexes, quadplexes, townhomes, and other housing assets designed with multiple families in mind. Depending on market conditions, available capital, and operational plans, each property type has its advantages and disadvantages worth analyzing before settling on any one.
You should also consider how you will handle the everyday operations of the property. Being a landlord can be time consuming and take a lot of effort, but many first-time investors and those with smaller properties end up tackling the daily operations on their own. Larger investors often own multiple properties and cannot stretch their efforts between them all, which leads to the utilization of property management companies.
Finally, you should consider the market you choose to invest in. Many first-time investors purchase properties close to home, mostly to be able to manage or keep a close eye on the asset. However, it can be beneficial to scour multiple markets in multiple regions in search of the ideal environment to chase your original multifamily investment goals. Shopping around in different markets can help you find a great 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 real estate investing?
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.
If you’re planning an apartment building acquisition, you may want to consider a Fannie Mae Small Loan, a traditional bank loan, or anything in between. Fill in the form on Multifamily.loans and you’ll get back to you with quotes at no cost.