Buying multi family rental properties is known to be a lucrative investment strategy. For a real estate investor, multi family homes offer a number of benefits that single-family homes don’t like higher rental income, easier financing, and less competition.
However, if you’re planning on owning multi family investments, there are a few market trends you should keep in mind. These trends will affect how profitable multi family rental properties really are and, thus, determine whether or not they actually make for a smart investment decision.
Real estate experts have been able to identify the market trends which influence multi family investments in the US housing market. So, to find out what to expect from owning a multi family rental property in 2018, here are the top 5 real estate market trends property investors need to know.
1) Demand Is Catching Up with Supply
At the beginning of 2017, the real estate market witnessed an abundance of construction and a new supply of multi family homes. This had caused some concern for property investors as the influx of supply led to increasing vacancy rates. However, at the end of 2017 and the beginning of 2018, new construction permits started to slow down. This resulted in an increasing demand for multi family investments, especially in secondary or emerging real estate markets.
This strong demand will continue to drive multi family rental properties in the foreseeable future due to rising home prices, lifestyle preferences, and demographic trends. Millennials, for example, who can’t afford to buy and own a property opt to rent apartment units rather than a single-family rental property. Retiring Baby Boomers, on the other hand, are now selling their single-family homes and downsizing to apartment units in exchange for flexibility and mobility. If you’re targeting one of these groups of tenants, we recommend reading:
- The Best Cities to Invest in Real Estate to Rent Out to Millennial Tenants
- Buying an Investment Property in the Best Places to Retire
2) The Job Market’s Impact
Another key factor for the increasing demand for multi family investments is the strong job market in many up-and-coming cities across the country. Last year alone, the US added a total of 2 million jobs. Moreover, the unemployment rate in the United States dropped to 3.7% in September. According to tradingeconomics.com, this is the lowest unemployment rate the US has seen since December of 1969!
Once again, a real estate investor will find better opportunities for multi family investments in growing markets, as more and more qualified employees are moving to these cities looking for high-paid jobs. For a real estate investor, this means a couple of things. First, the occupancy rate for multi family homes is higher in these locations and, second, this allows them to increase the amount they charge for rent. Together, the high demand and strong job market have led to the next trend.
3) Property Value and Rents Continue to Grow
As demand continues to grow, so will property values. In fact, Zillow reported that the median property price in the US housing market rose by 8.1% over the past year. This increase varied by city, as some had witnessed a huge jump while others saw a relatively small rise. Of course, it all falls back to supply and demand of multi family investments in each city.
Moreover, Zillow also predicted that this ongoing trend of rising property prices will continue in most US cities throughout the remainder of this year and the beginning of 2019. Thus, if you’re looking to invest, we recommend buying a property now before prices become too expensive.
With our Property Finder Tool, you can find the best multi family rental property in your city of choice in a matter of minutes! If you have a free Mashvisor account, click here to start your property search.
For property investors already owning multi family investments, the increasing property prices mean higher rental rates. As more people won’t be able to afford to buy a house, they’ll settle for renting which increases the demand. As a result, a profitable multi family rental property will generate a high rental income and, thus, allow for positive cash flow and a good return on investment.
4) Low Vacancy Rates in Most Markets
Considering the aforementioned market trends, this one is a no-brainer. Throughout 2018, vacancy rates in most cities have been below the historical average. This enables property investors to justify strong rent growth. Along with the improving economy, low vacancy rates in more housing markets are encouraging more multi family investments.
5) Best Cities for Multi Family Investments
So, we’ve covered the most important real estate market trends for multi family investments. Now you probably want to know which cities in the US housing market are best for this type of investment. According to Mashvisor’s Investment Property Calculator, multi family homes for sale in these 7 cities provide property investors with the highest cash on cash returns:
- Marco Island, Florida: Cash on Cash Return: 3.3%
- Baltimore, Ohio: Cash on Cash Return: 3.98%
- Hyden, Kentucky: Cash on Cash Return: 4.04%
- Manchester, New Jersey: Cash on Cash Return: 5.15%
- Lely, Florida: Cash on Cash Return: 5.35%
- Goldens Bridge, New York: Cash on Cash Return: 6.08%
- Ashland, Ohio: Cash on Cash Return: 6.61%
To learn more on why these cities are the best for multi family investments and how to find multi family homes for sale in 3 steps, read this “7 Best Rental Property Markets for Investing in Multi Family Real Estate.”
The Bottom Line
The healthy economy, steady job growth, robust rental demand, and low vacancy rates are the top real estate market trends affecting multi family investments in the US housing market. All these indicators show that investing in multi family rental properties makes for a smart investment decision in 2018. If you’re searching for a multi family home for sale, why not take advantage of our 14-day free trial?