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Multifamily Minute Reader Reflections: Where's Best to Buy in 2023?
Our survey of 40,000 multifamily investors show that most are shifting to a more suburban acquisition strategy this year.
In our Jan. 10 Multifamily Minute, we asked our more-than-40,000-strong readership to answer a quick question: Where will your next apartment building investment be located?
Our results show that it's all about the suburbs. About two-thirds of our readers indicated that they'd prefer to buy outside of busy city centers, targeting lower-density areas in primary or secondary markets.
Downtown areas are preferred by almost one-fourth of our respondents, with very few opting for really small markets or rural areas.
See the full table of results below.
Preferred Investment Location
Percent of Respondents
Suburban areas in a secondary market
Suburban areas outside a major, primary market
Urban/central areas in a major, primary market
Urban/central areas in a secondary market
A smaller, tertiary market
Why the Suburbs?
So, why all the focus on the suburbs? Every investor has his or her own reason, but there are a few dynamics at play here.
1. Suburban Properties Are Less Expensive
This isn't always true, of course, but suburban multifamily investments are broadly more accessible for most investors from a pricing standpoint. Lower prices can mean that you need less financing, on average, or can even take advantage of some remarkably competitive small balance multifamily loans. At a time when interest rates are climbing, that makes great sense.
2. Rents Are Rising Faster in the Suburbs
An article from GlobeSt in October 2022 showed that rental rates have increased far faster in suburban markets than in city centers, when examining trends since early 2020. That seems in line with how I'd expect rent growth to go in the future, too. After all, should we enter a recession, more and more people will likely shift to lower-cost, suburban parts of metro areas in an effort to save costs. As a result, rents will pick up even further.
3. More Investors Are Focusing There Already
The two points above aren't news to most investors. Cap rates dropped lower for garden apartment communities — far more typically found in suburbs — than for high- or mid-rise apartments in the second quarter last year, Wealth Management reported.
That means timing can be everything: As more and more buyers shift focus to the suburbs, pricing will rise even faster. In other words, if you already own (or can find a great deal) in suburbia, you could see some tremendous growth in property values with the influx of new buyers.
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Our Previous Survey
In case you missed it, last week we asked about the biggest challenges in finance for multifamily investors this year. Read our analysis of the results.
What are the best cities to invest in multifamily real estate in 2023?
The best cities to invest in multifamily real estate in 2023 are still to be determined. However, our 2022 ranking of the top multifamily markets for investments can provide some insight into the potential best cities for 2023. The top 5 markets for multifamily investment in 2022 are:
City Employment Growth Construction Rent Growth Vacancy Dallas, TX 2.7% 17,000 units +4.2% +0.20% Atlanta, GA 2.3% 14,000 units +4.2% +0.20% Houston, TX 2.2% 13,000 units +4.2% +0.20% Washington, DC 2.2% 13,000 units +4.2% +0.20% Los Angeles, CA 2.1% 12,000 units +4.2% +0.20%
These cities are likely to remain strong multifamily markets in 2023, but it is important to do your own research and due diligence to determine the best cities for your investment goals. For more information on multifamily real estate financing, please visit our website.
What are the benefits of investing in multifamily real estate in 2023?
Investing in multifamily real estate in 2023 can provide a number of benefits. According to this article, the multifamily sector across the country is in very good shape going into 2023. This means that investors can expect to see solid, strong returns, even during recessions in most cases. Additionally, investing in multifamily properties early can help take advantage of compounding returns, as small amounts of money invested can grow exponentially over time. Finally, investing in multifamily properties early can help diversify an investment portfolio, as the asset class is relatively low risk.
What are the risks associated with investing in multifamily real estate in 2023?
Investing in multifamily real estate in 2023 comes with some risks, such as higher interest rates with softening occupancy and rent growth. Investors with floating-rate debt will face additional pressure if vacancy increases. Fixed-rate loans may be a better option for investors looking to mitigate these risks.
What are the most important factors to consider when investing in multifamily real estate in 2023?
When investing in multifamily real estate in 2023, the most important factors to consider are the local market conditions, the current and projected rent growth, and the availability of financing.
The Top 5 Markets for Multifamily Rent Growth in 2023 article provides an overview of the current market conditions and projected rent growth in the top 5 markets. It also mentions that investors with floating-rate debt will continue to face pressure, so it is important to consider the availability of financing when investing in multifamily real estate.
The Multifamily Minute Reader Reflections: Where's Best to Buy in 2023? article provides an analysis of the results from a survey about the biggest challenges in finance for multifamily investors this year. This can help investors understand the current financing landscape and the challenges they may face when investing in multifamily real estate in 2023.
What are the best strategies for investing in multifamily real estate in 2023?
The best strategies for investing in multifamily real estate in 2023 will depend on the market conditions at the time. However, some strategies that can help you succeed include:
- Researching the local market and understanding the trends in the area.
- Analyzing the potential return on investment (ROI) of the property.
- Finding a reliable lender who can provide the best loan terms.
- Working with a knowledgeable real estate agent who can help you find the right property.
- Making sure you have enough capital to cover the down payment and closing costs.
- Creating a plan for managing the property and ensuring it is profitable.
What are the current trends in multifamily real estate investing in 2023?
The multifamily sector across the country is largely in very good shape going into 2023. However, higher interest rates are creating some headwinds, and Freddie Mac®’s Multifamily Apartment Investment Market Index showed that 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. Additionally, 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. 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.
Investors with floating-rate debt should continue to face pressure — especially if they see vacancy jump — but the average investor will come out of this year stronger, not just unscathed. It is recommended that investors consider fixed-rate loans to protect against rising interest rates. You can read more about the benefits of fixed-rate loans here.