Investing in multi family real estate holds many benefits for both beginner real estate investors and experienced ones. Indeed, buying rental properties with multiple housing units is emerging as one of the top real estate investment strategies for 2020. But where do you start from? How do you choose a top location? The first thing you need to know is where the best multifamily markets 2020 are located. This is what we will show you in this article. So, grab a cup of tea or coffee, sit down comfortably, and find out the best multifamily investing markets based on cap rate for the coming year.
Why Investing in Multi Family Homes for Sale?
New real estate investors tend to stay away from multifamily homes for sale and focus on single family homes instead. The reasons are two: They believe that the former rental property type 1) is too expensive and thus beyond their budget and 2) requires a lot of hard work to maintain, rent out, and manage. The truth of the matter is that multi family rental properties have many advantages:
- There are so many property types to choose from including duplexes, triplexes, quadraplexes, apartment buildings, and condo complexes. They come at different prices, depending on the type, size, and location, ranging from a few thousand to a few million dollars.
- Multifamily real estate investing allows investors to grow their rental property portfolio quickly. Instead of buying multiple investment properties to add several rental units to their investment portfolio, they can do that with a single home.
- Investing in multi family homes for sale is less risky. Even if one rental unit stays vacant for some time, you will continue receiving rental income from the others.
- Managing a multi family home for rent is easier than managing a few different rental properties. It also involves less traveling in case of out of state real estate investments.
- Hiring a professional property manager makes sense with multifamily homes so that investors can enjoy their passive income.
Related: Passive Real Estate Investing for Beginners: 8 Strategies
But how to you find the most profitable multi family homes 2020 to invest in? Similar to single family homes investing, you have to identify the best multifamily markets 2020. These are the locations which offer the highest cap rates for this property type.
What Is Cap Rate in Multifamily Investing?
The capitalization rate, or cap rate for short, is one of the most popular metrics of rate of return on rental properties in the real estate investing world. While it has one major disadvantage – namely, that it doesn’t account for the method of financing – it has many advantages which make it a preferred measure over cash on cash return and internal rate of return. Most importantly, as you will see from the cap rate formula below, it is easy to calculate and allows for straightforward comparison between the profitability potential of different investment properties.
To calculate cap rate on multifamily rental properties, use the following formula:
Cap Rate Formula:
Cap Rate = Net Operating Income (NOI)/Current Market Value x 100%
Before we move forward to discuss the best markets for multifamily investing in 2020, we need to ask: What is a good cap rate for multifamily rental properties?
The answer is the same as what is considered good cap rate for single family homes for rent and any other property type: between 8% and 12%.
Related: The Hottest Real Estate Investing Tool: The Cap Rate Calculator
What Are the Best Multifamily Markets 2020 for Cap Rate?
After showing you why you should consider buying a multi family home and why you should use the cap rate as your guiding tool in choosing a top-performing investment property, it’s time to have a look at the US cities which offer the highest cap rates by city for this rental property type in 2020. The figures have been computed by Mashvisor’s investment property calculator which uses big data and predictive analytics to forecast the 20 best multifamily markets 2020 for real estate investors. The last thing you should keep in mind is that these are cap rates for traditional rental properties, meaning such rented out on monthly or annual basis.
Related: 2020 Cap Rates by City: What Real Estate Investors Should Expect
1. Naples, FL
- Traditional Cap Rate on Multifamily: 5.9%
- Median Property Price: $351,300
- Price per Square Foot: NA
- Traditional Rental Income: $2,980
- Price to Rent Ratio: 25
- Multi Family Homes Listings: 91
2. Marco Island, FL
- Traditional Cap Rate on Multifamily: 5.9%
- Median Property Price: $635,400
- Price per Square Foot: NA
- Traditional Rental Income: $5,050
- Price to Rent Ratio: 20
- Multi Family Homes Listings: 162
3. San Bernardino, CA
- Traditional Cap Rate on Multifamily: 4.5%
- Median Property Price: $632,700
- Price per Square Foot: $356
- Traditional Rental Income: $4,820
- Price to Rent Ratio: 16
- Multi Family Homes Listings: 41
4. Hollywood, FL
- Traditional Cap Rate on Multifamily: 4.1%
- Median Property Price: $319,500
- Price per Square Foot: $231
- Traditional Rental Income: $2,160
- Price to Rent Ratio: 18
- Multi Family Homes Listings: 43
5. Bethlehem, PA
- Traditional Cap Rate on Multifamily: 3.3%
- Median Property Price: $224,800
- Price per Square Foot: $114
- Traditional Rental Income: $1,430
- Price to Rent Ratio: 17
- Multi Family Homes Listings: 45
6. Allentown, PA
- Traditional Cap Rate on Multifamily: 3.0%
- Median Property Price: $180,500
- Price per Square Foot: $91
- Traditional Rental Income: $1,210
- Price to Rent Ratio: 14
- Multi Family Homes Listings: 64
7. Chico, CA
- Traditional Cap Rate on Multifamily: 2.9%
- Median Property Price: $658,500
- Price per Square Foot: $321
- Traditional Rental Income: $3,940
- Price to Rent Ratio: 20
- Multi Family Homes Listings: 51
8. Chicago, IL
- Traditional Cap Rate on Multifamily: 2.9%
- Median Property Price: $458,000
- Price per Square Foot: $128
- Traditional Rental Income: $1,920
- Price to Rent Ratio: 18
- Multi Family Homes Listings: 96
- Traditional Cap Rate on Multifamily: 2.7%
- Median Property Price: $291,000
- Price per Square Foot: $153
- Traditional Rental Income: $1,380
- Price to Rent Ratio: 14
- Multi Family Homes Listings: 89
10. Cincinnati, OH
- Traditional Cap Rate on Multifamily: 2.6%
- Median Property Price: $269,700
- Price per Square Foot: $288
- Traditional Rental Income: $1,160
- Price to Rent Ratio: 17
- Multi Family Homes Listings: 43
11. Detroit, MI
- Traditional Cap Rate on Multifamily: 2.4%
- Median Property Price: $133,600
- Price per Square Foot: $55
- Traditional Rental Income: $910
- Price to Rent Ratio: 14
- Multi Family Homes Listings: 46
12. Long Beach, CA
- Traditional Cap Rate on Multifamily: 2.3%
- Median Property Price: $1,343,200
- Price per Square Foot: $438
- Traditional Rental Income: $6,470
- Price to Rent Ratio: 23
- Multi Family Homes Listings: 171
13. Philadelphia, PA
- Traditional Cap Rate on Multifamily: 2.2%
- Median Property Price: $403,600
- Price per Square Foot: NA
- Traditional Rental Income: $1,370
- Price to Rent Ratio: 18
- Multi Family Homes Listings: 229
14. Los Angeles, CA
- Traditional Cap Rate on Multifamily: 2.1%
- Median Property Price: $1,073,100
- Price per Square Foot: $470
- Traditional Rental Income: $4,350
- Price to Rent Ratio: 24
- Multi Family Homes Listings: 954
15. Buffalo, NY
- Traditional Cap Rate on Multifamily: 2.0%
- Median Property Price: $168,600
- Price per Square Foot: $64
- Traditional Rental Income: $940
- Price to Rent Ratio: 15
- Multi Family Homes Listings: 193
16. Atlanta, GA
- Traditional Cap Rate on Multifamily: %
- Median Property Price: $530,000
- Price per Square Foot: $148
- Traditional Rental Income: $2,180
- Price to Rent Ratio: 17
- Multi Family Homes Listings: 62
17. Cleveland, OH
- Traditional Cap Rate on Multifamily: 1.9%
- Median Property Price: $105,500
- Price per Square Foot: $50
- Traditional Rental Income: $830
- Price to Rent Ratio: 13
- Multi Family Homes Listings: 144
18. Columbus, OH
- Traditional Cap Rate on Multifamily: 1.9%
- Median Property Price: $284,300
- Price per Square Foot: $111
- Traditional Rental Income: $1,200
- Price to Rent Ratio: 16
- Multi Family Homes Listings: 101
19. Miami, FL
- Traditional Cap Rate on Multifamily: 1.8%
- Median Property Price: $492,100
- Price per Square Foot: $220
- Traditional Rental Income: $2,170
- Price to Rent Ratio: 19
- Multi Family Homes Listings: 150
20. Dallas, TX
- Traditional Cap Rate on Multifamily: 1.8%
- Median Property Price: $506,500
- Price per Square Foot: $200
- Traditional Rental Income: $2,170
- Price to Rent Ratio: 18
- Multi Family Homes Listings: 126
What Are the Most Important Trends in the Best Multifamily Markets 2020?
We know that this is a lot of real estate data to take all at once, so we’ve summarized the key points for you:
- The first thing which any real estate investor probably noticed is that the average cap rate for multifamily homes in these top locations ranges between 1.8% and 5.9%. This is significantly below the recommended good cap rate of 8%. However, you should keep in mind that these are only average cap rates by city, while some neighborhoods within these markets offer double-digit return on investment.
- The best multifamily markets 2020 are generally affordable with median property prices between $105,500 and $1,343,200. That’s not a lot considering that we are talking about buying multiple rental units at once. Buying cheap real estate is important for beginners who don’t have much cash and face limited financing options.
- The monthly rental income varies between $830 and $6,470. These values are enough to provide good return on investment.
- These top locations for investing in multifamily real estate properties have a price to rent ratio from 13 to 25. Most of them have medium to high price to rent ratio, which means strong rental demand for traditional investment properties.
- The states with the largest number of best multifamily investing markets in 2020 are Florida, California, Ohio, and Pennsylvania.
- The location with absolutely the highest cap rate for traditional multifamily rental properties in the US housing market 2020 will be the Naples real estate market. This is the best multifamily market in 2020.
Now that you know the best multifamily markets 2020, all that is left is to sign up for Mashvisor to start searching for the most profitable multi family homes for sale. Start your 14-day free trial today to welcome the new year prepared.
