A real estate metric I didn’t know exists.

[Derek Kemp]

Has anyone heard of this???????

I stumbled across a podcast talking about multifamily volatility. To be entirely honest, I’m a bit embarrassed to say that before watching I had no idea about the main topic (something called beta). 

If I’m understanding correctly, beta helps us figure out how “sensitive” a market is to swings in the entire national market. Pretty interesting since I’ve been wondering about different ways I could choose my next market.

Giving it my best shot to give y’all the main points here, it looks like Phoenix multifamily gives you some big upside and so does Houston. Some markets “shield” you from risk. Others “leverage” risk. And beta gives you the number for that.

As an owner of over 20 apartment complexes, I thought this was a good conversation to watch so wanted to share with everyone. 

[Trevor Dominique]

Beta is a financial metric....it can be applied to any investment, not just real estate. 

But you are correct, it is a measure of sensitivity relative to the overall market. So a beta of 1 would represent a company/investment that behaves similar to the entire market. So, for example, Tesla has a beta of 1.94, which makes sense because in a slight downturn a lot of people are going to stop buying high end vehicles. Walmart, on the other hand, has a beta of 0.48, which also makes sense because even in a downturn people are going to continue to need groceries, and since Walmart has cheap products, people will continue shopping there, which means Walmart won't experience as severe of a downturn as the average company.

If you apply that to a real estate market, I would think that cities with high tourism have high multifamily betas (maybe Nashville as an example). Whereas a city with a large supply of large, long tenured employers would have a low beta.

I'm not an expert on beta, but hope this helps.