Multifamily properties provide numerous upsides. These investments generate income and are recession-resistant. People will always need a place to live, but some locations are more desirable than others. Real estate investors learn early in the journey that location is a vital indicator of future cash flow and appreciation. Buying multifamily investment properties in desirable cities leads to lower vacancies and higher rent growth over time. We’ll share top cities, reasons to invest, and what makes a great place for a multifamily property.
Multifamily Properties As Investment
Multifamily properties can provide cash flow and appreciation. You can get the same advantages with single-family homes, but multifamily investments are more scalable. You can buy a 10-unit building instead of searching for 10 single-family rental property units. You’ll also save money when hiring a property manager since all of the work happens at one site.
The scaling nature of multifamily investments becomes more significant as you target larger complexes. Some investors and equity firms acquire multifamily homes with over 100 housing units. Investors can spot opportunities in the U.S. housing market and gain significant exposure through multifamily investing. This exposure helps them capitalize on higher rental demand from the hottest markets. In addition, multifamily properties and more real estate investments provide several tax advantages to shield your cash flow.
What Makes a City Great for Multifamily Investing
While homeowners look for the best home for their needs, investors focus on the numbers. Their due diligence helps them discover great cities from multifamily property investing. We’ve outlined some common factors among the top metropolitan areas.
Population Growth
Supply and demand dictate the economy. Growing cities help investors maintain occupancy rates near 100%. Everyone needs a place to live, and cities are running out of space to build new properties. Population growth increases each unit’s demand, giving investors more flexibility to raise rent prices in the future.
Job Growth
People may enjoy a city, but they’ll only stick around if they can find work. Once people find a job, people usually settle and don’t entertain living in another location until a career switch or retirement. Incoming residents and more jobs suggest sustainable growth for the city. A heavily populated city with mounting job losses may become vulnerable to more crimes. People still need to make money, and without a job, some resort to property theft and other malicious acts. Cities that provide many opportunities for incoming residents often have lower unemployment and crime rates.
Rent Prices
Current rent prices help investors estimate the property’s profit margin. Some multifamily owners didn’t raise rent aggressively enough, creating a great opportunity for an incoming landlord. Investors should also monitor historical rent price movements. Solid rent growth over the past five years combined with strong population and job growth suggests more growth in the future.
Development Activity
Developers add value to a city by developing new structures. The city may create a new park, office building, or another structure that will make the city more enticing. A more appealing city attracts more people. Development activity can lead to future population growth and open up more jobs.
What U.S. State has the Most Multifamily Homes
New York currently has the most multifamily homes, with many scattered across the five boroughs. Although the state has many properties and high demand in the boroughs, prices are sky-high, making it difficult for newcomers to enter the market.
Best Places to Buy Multifamily Investment Properties in 2022
Although New York has more multifamily properties than any other state, other cities rank higher as investment opportunities. Our list of 10 cities includes areas with higher growth potential.
Miami, Florida
- Home value: $515,000
- Home value appreciation: 28.2% YOY growth
- Effective property tax rate: 0.97%
- Rent to home value ratio: 4.97%
- Rental vacancy rate: 5.85%
- Rent to income ratio: 28.7%
Many northeastern snowbirds head to Florida, and more people have been staying in the sunshine state year-round. Miami is an attractive place and the second most populated city in Florida, boasting vibrant nightlife, many cultures, and plenty of entertainment choices.
Cleveland, Ohio
- Home value: $110,000
- Home value appreciation: 6.3% YOY growth
- Effective property tax rate: 2.44%
- Rent to home value ratio: 13.51%
- Rental vacancy rate: 5.80%
- Rent to income ratio: 17.1%
Cleveland has a population of over 385,000 people and was recently ranked as the 5th best city for jobs in 2020. Cleveland has a formidable healthcare system while maintaining a small-town vibe.
Austin, Texas
- Home value: $620,000
- Home value appreciation: 21% YOY growth
- Effective property tax rate: 1.35%
- Rent to home value ratio: 3.36%
- Rental vacancy rate: 5.57%
- Rent to income ratio: 19.67%
Austin has a population of over 950,000, with many west coasters heading to the city for a lower cost of living. The city has many nature trails, lakes, and parks. The city plays host to many tech giants such as Apple and Oracle.
Atlanta, Georgia
- Home value: $400,000
- Home value appreciation: 16.6% YOY growth
- Effective property tax rate: 1.00%
- Rent to home value ratio: 5.44%
- Rental vacancy rate: 6.20%
- Rent to income ratio: 20.47%
The southeastern city has a vibrant economy, top-tier restaurants, and a warm climate. The affordable housing, historical significance, and other amenities have attracted nearly 500,000 residents.
Charlotte, North Carolina
- Home value: $385,000
- Home value appreciation: 20.3% YOY growth
- Effective property tax rate: 1.05%
- Rent to home value ratio: 4.86%
- Rental vacancy rate: 7.12%
- Rent to income ratio: 19.5%
The North Carolina city boasts a population of over 850,000 people. Charlotte has a strong job market, a charming city, and a great climate. All of these perks also come with a low cost of living.
Phoenix, Arizona
- Home value: $459,000
- Home value appreciation: 27.6% YOY growth
- Effective property tax rate: 0.61%
- Rent to home value ratio: 4.04%
- Rental vacancy rate: 4.98%
- Rent to income ratio: 21.0%
Phoenix has strong demand, demonstrated by the fact that the city draws over 1.6 million tourists each year who seek the city’s central point to many attractions. You can do much within the city, but it’s also near the Grand Canyon and Las Vegas. It gets hot in the summer, but it won’t snow in the winter. The city’s population is 1.6 million people.
Boise, Idaho
- Home value: $579,000
- Home value appreciation: 19.4% YOY growth
- Effective property tax rate: 0.60%
- Rent to home value ratio: 3.26%
- Rental vacancy rate: 1.64%
- Rent to income ratio: 19.3%
Boise is a relatively small city on the list, but it has great promise. Over 226,000 people call Boise home, and it has some of the most scenic trails and mountains. The numerous outdoor activities also come with a low cost of living and optimal weather. Boise has a high occupancy rate across its rental units.
Dallas, Texas
- Home value: $525,000
- Home value appreciation: 10.0% YOY growth
- Effective property tax rate: 1.93%
- Rent to home value ratio: 3.37%
- Rental vacancy rate: 8.76%
- Rent to income ratio: 20.0%
Dallas features a growing economy with many jobs. The city has a population of over 1.3 million people. The cost of living in Dallas is roughly on par with the national average cost of living across the United States, something you won’t find in most cities.
Las Vegas, Nevada
- Home value: $420,000
- Home value appreciation: 29.6% YOY growth
- Effective property tax rate: 0.65%
- Rent to home value ratio: 4.20%
- Rental vacancy rate: 8.85%
- Rent to income ratio: 22.9%
Las Vegas attracts international visitors for its casinos, but the city has more to offer. The business-friendly metro area has a population of over 675,000 people. Many people like Sin City’s low cost of living and warm climate. The 29.6% in the past year is one of the highest in the nation.
Raleigh/Durham, North Carolina
- Home value: $389,000
- Home value appreciation: 24.5% YOY growth
- Effective property tax rate: 1.18%
- Rent to home value ratio: 4.70%
- Rental vacancy rate: 5.86%
- Rent to income ratio: 17.2%
Raleigh/Durham plays host to a population of over 464,000 people. The city features top universities such as N.C. State, UNC, and Duke. These colleges attract young professionals and create thousands of jobs. The city also has scenic places and many nightlife activities.
Where to Get Started Investing in Multifamily Properties
Multifamily property investing gives you access to incredible real estate. You can generate cash flow, scale the model more seamlessly, and benefit from appreciation. However, these properties come with high home values. You’ll need to make hefty down payments and keep up with the mortgage.
