5 Best Cities to Buy Rental Properties Right Now

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One of the primary factors to consider when investing in multifamily properties is, naturally, location—as investment strategy can inform geographic focus and vice versa.

Investors who are newer to real estate or the multifamily sector—and even some seasoned investors—often prefer to invest in specific geographical areas because they are familiar with them. Perhaps they have lived in these markets and/or know the drivers and challenges in the area, as well as the specific neighborhoods.

Experienced multifamily investors tend to like certain markets because the properties they own in these regions have delivered desirable results for them, and they foresee the same success in the future.

On the other hand, investors often look to diversify their geographical scope by investing in markets that are new to them but have solid fundamentals and promise higher yields.

At my company Trion, for example, we focus on multifamily investment in emerging markets with strong job growth and rising populations. We target cities where we can acquire properties at reasonable prices and increase our return on investment (ROI) through smart improvements to justify increased rental rates.

There are benefits to investing in markets that do well when times are bad—not just markets that do well when times are good—and specific submarkets with supply constraints tend to be a bit more resilient.

Below are the markets we currently consider to be the five best for multifamily investment and why we consider them so.

5 Best Markets for Multifamily Rentals in 2019

1. Portland, Oregon

Millennials and residents of all ages are continuing to discover the appeal of this Pacific Northwest city and its surrounding suburbs. The area boasts one of the lowest cost-of-living levels among major West Coast markets.

Rent growth is on the rise and occupancy is near capacity in the region, as quality apartment communities continue to be developed and redeveloped. (1) In fact, investment sales for multifamily product in the second quarter of 2019 surpassed those of second quarter 2018 by 25 percent, indicating a trend toward higher valuations. We believe now is the right time to invest in this market—before prices go through the roof and while it is still attracting up-and-coming professionals.

Related: How to Choose an Out-of-State Market for Investment (in 3 Easy Steps!)

2. Greater San Francisco Area (East Bay)

Demand for multifamily properties from tenants and investors continues unabated in the East Bay, as both cohorts are priced out of San Francisco proper and competition among investors remains particularly strong. These figures are supported by the fact that unemployment is below the national average in the region, and asking rental rates in East Bay’s Alameda and Contra Costa counties saw year-over-year growth of 4.8 and 3.3 percent, respectively, during the second quarter of 2019—the largest increases in the Bay Area. (2)

The tech sector remains a huge draw to this market for younger professionals, who are attracted to both the large global tech firms and startups that cluster to the region and show promise.

3. Denver

As a secondary market that is quickly gaining ground among investors, Denver features strong multifamily fundamentals, including decreasing vacancy rates, increasing rental rates, and robust development activity. (3) The region offers residents a rich history, active lifestyle, and gorgeous scenic mountain views. In addition, the affordability gap for housing in the area is wide, prompting many residents to choose apartment living over homeownership.

In-migration to Denver remains strong and new household formation robust, which also drives the demand for multifamily. Vacancy is tight and more than 23,000 apartment units are currently under construction in the market to help meet the increased demand.

4. Salt Lake City

Strong job creation is driving workers from other parts of the country to relocate to Salt Lake City, increasing demand for apartments in the area. While multifamily rental rates grew 5.1 percent annually in this market (4), tenants from pricier markets like Los Angeles, San Francisco, Chicago, New York, and Dallas are considering Salt Lake City’s rates to be a bargain, particularly with considering the high quality of life this market offers. Units are being leased just about as quickly as they become available, making this a particularly attractive and comparatively low-risk region for multifamily investors.

Related: 5 Ways to Reduce Risk When Investing in Multifamily Real Estate

5. Seattle

Demand for rental housing in the Puget Sound—and Seattle, in particular—has been especially strong. Seattle holds a market-leader position in job creation during the current economic cycle and is pulling in tech companies from the Bay Area, as they tap into the region’s industry foundation.

In fact, tech giants including Apple, Facebook, Google, Microsoft, and Amazon are deeply entrenched in the market. All of these facts bode well for Seattle’s multifamily sector. (5) Its strength is encouraging investors to move out of the central business district and into the suburban submarkets in a quest for yield on their investments.

With job growth on the rise, apartment demand is predicted to keep up with supply, keeping the market solid for investment.

The Bottom Line

While there are no guarantees in multifamily investment and risk exists in all markets, knowing what to look for in a particular region helps investors mitigate some of the risk and make smarter choices that align with their overall investment strategy.

Studying market fundamentals, drivers, and challenges allows investors to move forward with those choices more confidently as they navigate their way through multifamily real estate transactions.

Sources

1. https://www2.colliers.com/en/Research/Portland/2019-Q2-Portland-Metro-Multifamily-Market-Report
2. http://www.cushmanwakefield.com/en/research-and-insight/unitedstates/bay-area-multifamily-snapshot
3. https://www2.colliers.com/en/Research/Denver/2019-Q2-Denver-Multifamily-Market-Report
4. https://www.deseret.com/utah/2019/9/9/20857449/utah-rentals-housing-apartment-market-greater-salt-lake-area-multifamily-market-report
5. https://www.institutionalpropertyadvisors.com/research/market-report/multifamily/seattle/seattle-tacoma-multifamily-research-report

Which markets have caught your attention? Anything you’d add to this list? 

Weigh in with a comment below. 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.