Buying a multifamily home for investment is a smart move, but where in the US housing market will you get the highest return on investment? There are many factors which shift the real estate market, so it’s important to stay updated on market conditions before making any big investments. This blog will help you make that decision by pointing you in the direction of the best multifamily investment markets.
Finding the Best Multifamily Investment Markets
Using Mashvisor’s investment property calculator, we’ll help you find the best state to invest in real estate. This is an industry filled with change and because of that, new emerging markets appear every year. To predict the best multifamily investment markets this year, we will analyze some data and take a look at overall market trends.
There are certain key indicators which help investors in determining where to invest in real estate and Mashvisor’s data covers it all:
Mashvisor’s Data:
- Median Property Price: the figure in the middle of the range of property prices sorted from lowest to highest in a certain market
- Price per Square Foot: the purchase price broken down by dollar amount per square foot for a more equal comparison
- Price to Rent Ratio: the ratio of home prices to annualized rent in a given location which shows whether it’s cheaper to rent or own property (so the higher the ratio, the cheaper it is to rent in that area)
- Traditional Rental Income: the amount you can expect to get for a rental unit when renting to long-term tenants
- Cash on Cash Return: a rate of return ratio which calculates the total cash earned on the total cash invested (the amount of the total cash earned is based on annual pre-tax cash flow)
- Walk Score: how walkable the area is to local attractions, schools, etc. (a number between 0 and 100 that measures the walkability of any address)
Our data covers multiple factors, but if you’d like a more in-depth analysis of the markets mentioned here, and any other US real estate market you’re interested in, sign up for Mashvisor. You will gain access to data like this for neighborhoods and even investment properties. Start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after.
Other Factors to Consider:
- Rent Price Growth: The best place to buy multifamily properties is where there is strong price growth in rents. Strong rent increases ensure that the cost and financing factors are not much of an issue.
- Neighborhood Amenities: The location of your property within the market itself is a very important factor. Typically, tenants interested in multifamily units are more likely dependent on local amenities and public transportation than say, those interested in a single family home rental property.
- Landlord-Tenant Laws: Choosing a landlord-friendly state will definitely be a plus when operating your multifamily investment property. The best multifamily investment markets don’t necessarily need to all be landlord-friendly. However, when dealing with multiple tenants, it helps to know that the law favors the landlord’s rights when it comes to evictions and handling bad tenants.
Related: Invest in Real Estate in the 5 Most Landlord Friendly States
This isn’t an exhaustive list of all the factors to consider when hunting down the best multifamily investment markets, but they are some of the best indicators. Of course, every investor has a different portfolio and strategy upon which investment and search criteria differ. So be sure to perform a thorough market analysis using these factors and more before investing.
According to Mashvisor’s data (in no specific order), here are the five best real estate investment markets for a multifamily investor.
Where to Buy Multifamily Investment Property
1) Vermont
- Median Property Price: $325,610
- Price per Square Foot: $94
- Price to Rent Ratio: 14
- Average Days on Market: 195
- Walk Score: 47
- Traditional Monthly Rental Income: $1,900
- Cash on Cash Return: 5%
2) Maryland
- Median Property Price: $300,777
- Price per Square Foot: $103
- Price to Rent Ratio: 16
- Average Days on Market: 93
- Walk Score: 52
- Traditional Monthly Rental Income: $1,588
- Cash on Cash Return: 4%
3) New York
- Median Property Price: $722,043
- Price per Square Foot: $806
- Price to Rent Ratio: 25
- Average Days on Market: 127
- Walk Score: 50
- Traditional Monthly Rental Income: $2,450
- Cash on Cash Return: 2%
4) Virginia
- Median Property Price: $274,061
- Price per Square Foot: $115
- Price to Rent Ratio: 18
- Average Days on Market: 97
- Walk Score: 49
- Traditional Monthly Rental Income: $1,281
- Cash on Cash Return: 3%
5) California
- Median Property Price: $1,066,420
- Price per Square Foot: $447
- Price to Rent Ratio: 21
- Average Days on Market: 79
- Walk Score: 49
- Traditional Monthly Rental Income: $4,332
- Cash on Cash Return: 2%
If you want to start narrowing down your search for multifamily homes for sale in any of these markets, click here to use our property search tool and find a property in one of the best multifamily investment markets.
Why MultiFamily Investing?
Now that you know where to invest, what about the why? Why is investing in multifamily homes a good choice?
Many investors immediately rule multifamily properties as unaffordable and high maintenance investments. This is a mistake, as they have proven to be quite profitable with the return on investment being worth the risk.
Here are 3 reasons why investors should be adding multifamily properties to their investment portfolios:
More Reliable Income
So this one is common sense. Multiple rental units in the same investment property mean multiple streams of income at the same time. A vacant single family home means zero income. Whereas it will be rare for a multifamily home to go unoccupied in a good location like those listed above. This fact will lessen the pressure to accept the first tenant you find, and instead, allow you to screen for quality tenants.
Past Success
There is still a large base of tenants looking for multifamily homes, and current demand for multifamily housing is high. Demand is starting to overwhelm the actual supply available which clearly needs to keep up. It’s predicted that by 2030 there will be 4.5 million multifamily units needed to accommodate the rental population.
It Isn’t That Expensive
Yes, the initial cost required to finance this property, even in some of the best multifamily investment markets, is hefty. However, when the investment is worth it, smart investors know to look past the cost and focus on what this money is actually buying. For example, break down the price of the property per unit; it’ll be much lower than if you invested in the same number of single family homes.
Related: How to Generate Passive Income from Multifamily Real Estate Investing
So now that you’ve got a bit more knowledge on the best multifamily investment markets, and the industry in general, it’s time you take the next step and dig a little deeper. If you are interested in a more thorough analysis of these markets, experience investing with Mashvisor. To learn about your options for signing up for our services, click here.