Apartment Market Cycles and Best Cities to Buy

Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes

@Michael Ealy you showed me this the last time. Glad to see Columbus is still in the green :) Shame the site doesn't offer a "subscribe" feature.

2 Reply

Chris Salerno

Rental Property Investor · Charlotte NC · Member since 2019 · 306 posts · 183 votes

6y

Originally posted by @Michael Ealy:

Hi BP Nation,

I found the latest market cycle report. See below:

The "y axis" is occupancy. As it crosses the LT (Long Term) Average Occupancy, it's a good enough market to build new apartment buildings. Dr. Mueller (the researcher who developed this) divided the market cycles into 4 Main Phases/Cycles/Quadrants with 16 distinct points.

Best time to buy/ build are points 8 to 11 (Expansion) as rents & occupancy are increasing the fastest.

Points 12-13 are still good points to buy in because rents are still increasing but at a lower rate and occupancy is moving down to the long term average.

A city can actually move backward (not just forward) through the 4 Market Phases. So it can be in Hypersupply today but it does not mean it will go down to Recession stage. It can actually go back to Expansion stage.

So questions to experienced apartment syndicators/sponsors:

1. Do you use Dr Mueller's report in determining where to buy and when to buy?

2. I didn't find use for Dr Mueller's Market Cycle Report before BUT since now I can buy apartments nationwide, I am interested to know which cities I should focus on. Two cities keep on appearing in all the research my staff has done: Austin and Phoenix. What do you think of these 2 cities?

3. What other Market studies do you look at to evaluate/determine which cities/sub-market to buy in?

Calling on Ben Leybovich, Brian Burke, @Chris Salerno, @Grant Cardone, @Alina Trigub, @Ola Dantis, @John Casmon...

Since the graphic above is not very clear, below are the cities that are still in Expansion Phase:

Austin
Boston
Chicago
Columbus
Detroit
Houston
Jacksonville
Kansas City
Las Vegas
Los Angeles
Milwaukee
Minneapolis
New Orleans
New York
Norfolk
N. New Jersey
Orange County
Palm Beach
Philadelphia
Pittsburgh
Phoenix
Raleigh-Durham
Riverside
Sacramento
San Antonio
San Diego
Tampa
St Louis
Stamford

I think the Carolina market is going to be very strong. I do not see the major markets in the Carolinas going into a recession based on the strong jobs that are going to those cities. A lot of people focus on the media and these types of graphs. I think if they focus on buying a great deal they will make money in any type of market.

4 Reply

Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

6y

Originally posted by @Michael Ealy:

Hi BP Nation,

I found the latest market cycle report. See below:

The "y axis" is occupancy. As it crosses the LT (Long Term) Average Occupancy, it's a good enough market to build new apartment buildings. Dr. Mueller (the researcher who developed this) divided the market cycles into 4 Main Phases/Cycles/Quadrants with 16 distinct points.

Best time to buy/ build are points 8 to 11 (Expansion) as rents & occupancy are increasing the fastest.

Points 12-13 are still good points to buy in because rents are still increasing but at a lower rate and occupancy is moving down to the long term average.

A city can actually move backward (not just forward) through the 4 Market Phases. So it can be in Hypersupply today but it does not mean it will go down to Recession stage. It can actually go back to Expansion stage.

So questions to experienced apartment syndicators/sponsors:

1. Do you use Dr Mueller's report in determining where to buy and when to buy?

2. I didn't find use for Dr Mueller's Market Cycle Report before BUT since now I can buy apartments nationwide, I am interested to know which cities I should focus on. Two cities keep on appearing in all the research my staff has done: Austin and Phoenix. What do you think of these 2 cities?

3. What other Market studies do you look at to evaluate/determine which cities/sub-market to buy in?

Calling on Ben Leybovich, Brian Burke, @Chris Salerno, @Grant Cardone, @Alina Trigub, @Ola Dantis, @John Casmon...

Since the graphic above is not very clear, below are the cities that are still in Expansion Phase:

Austin
Boston
Chicago
Columbus
Detroit
Houston
Jacksonville
Kansas City
Las Vegas
Los Angeles
Milwaukee
Minneapolis
New Orleans
New York
Norfolk
N. New Jersey
Orange County
Palm Beach
Philadelphia
Pittsburgh
Phoenix
Raleigh-Durham
Riverside
Sacramento
San Antonio
San Diego
Tampa
St Louis
Stamford

Michael- I do not use these types of reports. As you know real estate is hyper local and these reports use a lot of averages. The two markets you mentioned are very competitive as everyone wants to be in the hottest markets.

There are deals to be in every market cycle but not every market. I tend to rely on my own due diligence and market research regarding supply and demand. If occupancy is high with no new units in the pipeline it’s a good market to build and buy and vise versa.

What your seeing in the top sought after markets are yield plays and fee based deals. Nothing wrong with either but at 3-5 CAP that's what you have.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Chris Salerno:

Originally posted by @Michael Ealy:

Hi BP Nation,

I found the latest market cycle report. See below:

The "y axis" is occupancy. As it crosses the LT (Long Term) Average Occupancy, it's a good enough market to build new apartment buildings. Dr. Mueller (the researcher who developed this) divided the market cycles into 4 Main Phases/Cycles/Quadrants with 16 distinct points.

Best time to buy/ build are points 8 to 11 (Expansion) as rents & occupancy are increasing the fastest.

Points 12-13 are still good points to buy in because rents are still increasing but at a lower rate and occupancy is moving down to the long term average.

A city can actually move backward (not just forward) through the 4 Market Phases. So it can be in Hypersupply today but it does not mean it will go down to Recession stage. It can actually go back to Expansion stage.

So questions to experienced apartment syndicators/sponsors:

1. Do you use Dr Mueller's report in determining where to buy and when to buy?

2. I didn't find use for Dr Mueller's Market Cycle Report before BUT since now I can buy apartments nationwide, I am interested to know which cities I should focus on. Two cities keep on appearing in all the research my staff has done: Austin and Phoenix. What do you think of these 2 cities?

3. What other Market studies do you look at to evaluate/determine which cities/sub-market to buy in?

Calling on Ben Leybovich, Brian Burke, @Chris Salerno, @Grant Cardone, @Alina Trigub, @Ola Dantis, @John Casmon...

Since the graphic above is not very clear, below are the cities that are still in Expansion Phase:

Austin
Boston
Chicago
Columbus
Detroit
Houston
Jacksonville
Kansas City
Las Vegas
Los Angeles
Milwaukee
Minneapolis
New Orleans
New York
Norfolk
N. New Jersey
Orange County
Palm Beach
Philadelphia
Pittsburgh
Phoenix
Raleigh-Durham
Riverside
Sacramento
San Antonio
San Diego
Tampa
St Louis
Stamford

I think the Carolina market is going to be very strong. I do not see the major markets in the Carolinas going into a recession based on the strong jobs that are going to those cities. A lot of people focus on the media and these types of graphs. I think if they focus on buying a great deal they will make money in any type of market.

I agree with you Chris.

There are always deals in any market.

That's why I am still buying in Cincinnati even though it's in "Hypersupply". For example, one person I am coaching found a 138 unit apartment complex that the rents are way under $1/sqft and it's an opportunity to increase the rents with a light value-add and increase the value significantly.

But when I go outside my market, I need to have a preliminary basis on which market to choose and then based on that, which sub-markets and then if there are good deals in those sub-markets.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Greg Dickerson:

Originally posted by @Michael Ealy:

Hi BP Nation,

I found the latest market cycle report. See below:

The "y axis" is occupancy. As it crosses the LT (Long Term) Average Occupancy, it's a good enough market to build new apartment buildings. Dr. Mueller (the researcher who developed this) divided the market cycles into 4 Main Phases/Cycles/Quadrants with 16 distinct points.

Best time to buy/ build are points 8 to 11 (Expansion) as rents & occupancy are increasing the fastest.

Points 12-13 are still good points to buy in because rents are still increasing but at a lower rate and occupancy is moving down to the long term average.

A city can actually move backward (not just forward) through the 4 Market Phases. So it can be in Hypersupply today but it does not mean it will go down to Recession stage. It can actually go back to Expansion stage.

So questions to experienced apartment syndicators/sponsors:

1. Do you use Dr Mueller's report in determining where to buy and when to buy?

2. I didn't find use for Dr Mueller's Market Cycle Report before BUT since now I can buy apartments nationwide, I am interested to know which cities I should focus on. Two cities keep on appearing in all the research my staff has done: Austin and Phoenix. What do you think of these 2 cities?

3. What other Market studies do you look at to evaluate/determine which cities/sub-market to buy in?

Calling on Ben Leybovich, Brian Burke, @Chris Salerno, @Grant Cardone, @Alina Trigub, @Ola Dantis, @John Casmon...

Since the graphic above is not very clear, below are the cities that are still in Expansion Phase:

Austin
Boston
Chicago
Columbus
Detroit
Houston
Jacksonville
Kansas City
Las Vegas
Los Angeles
Milwaukee
Minneapolis
New Orleans
New York
Norfolk
N. New Jersey
Orange County
Palm Beach
Philadelphia
Pittsburgh
Phoenix
Raleigh-Durham
Riverside
Sacramento
San Antonio
San Diego
Tampa
St Louis
Stamford

Michael- I do not use these types of reports. As you know real estate is hyper local and these reports use a lot of averages. The two markets you mentioned are very competitive as everyone wants to be in the hottest markets.

There are deals to be in every market cycle but not every market. I tend to rely on my own due diligence and market research regarding supply and demand. If occupancy is high with no new units in the pipeline it’s a good market to build and buy and vise versa.

What your seeing in the top sought after markets are yield plays and fee based deals. Nothing wrong with either but at 3-5 CAP that's what you have.

Thanks for chiming in Greg. I agree: there are always good deals in every market cycle. Heck, I made money even during the Great Recession. In fact, come to think of it, ever since my "come back", I never stopped buying apartments since 2004 - so I bought on the way up, during the peak, during the crash, on the way down and on the way back up to recovery phase.

And I agree with you on the real estate market being hyper local - it's down to the neighborhood level not just the city level. One side of the city can be an "A" area and a few miles is a "D" area. Also, I look at growth - more specifically, is there a value-add where I can do a light renovation and produce a significant increase in rents? If so, then it's a "Go".

Can you elaborate more on your statement that there is a deal in every market cycle but not in every market? I am assuming you mean a declining area - where rents are going down and vacancy going up - is a not a good area to buy in?

0 Reply

Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

6y

@Michael Ealy what I mean is you can always find deals with margin in every market cycle like you did but you can’t always find deals with margin in every market like the two markets you mentioned Austin and Phoenix. These are most likely producing yield plays and fee deals vs margin opportunities.

You and I are opportunistic investors and look for margin so we need less competitive markets but have more flexibility to strike when the deal is right.

1 Reply

Brian BurkePro Member

Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes

6y

Dr. Mueller's market cycle monitor is an interesting report, but I don't use it to pick markets. Mostly because it tells you where things are now, or where they have been, but says little about where they are going to be in the future. That's kind of a problem with most market reports, however. As you said, just because a market is at position 12 today doesn't mean it goes to 13 or 14 tomorrow. In fact, it can go straight from 12 to 10 in a single quarter--I've seen that happen several times in the past with this study. Still worth looking at, nevertheless.

Other reports I like are the Milken Institute's Best Performing Cities Index, which should be releasing in the next month. And the PwC/ULI Emerging Trends in Real Estate report, which was just recently published (it comes out near the end of every year). Neither of these reports, nor the Mueller report are definitive, but when you see the same names pop up on all of these you should take notice.

For more submarket-specific data plus some forecasting into the future, I like the reports from Axiometrics and REIS. They aren't cheap, but they are cheaper than an acquisition or underwriting mistake...

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

3 Reply

Ben Leybovich

Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes

6y

You have to take all of these reports with a grain of salt. While Columbus, Austin, Raley, Phoenix, and New York are all grouped together in this graph, they are very different dynamically from one another. You are comparing 1M MSA in Columbus to 5M MSA in Phoenix to NY...

Milken is good, bit hyper-focused on technology, which may not provide enough flavor about the other sectors.

Ultimately, here we are. Today. Is the population story likely to continue in the MSA? Is the job growth story going to continue in the MSA? Is there an intrinsic barrier to entry relative to new development in the MSA, whatever it may be?

Maybe we are at 11 on the graph. Or, maybe we are at 9,25 on the same graph. Or, maybe we are at 11, but the green is going to stretch past 13...

This has never happened, but I agree with @Brian Burke - it seems to me that the forward-looking picture is what's really important. And, let's face it, all of us are making a guess at it; an educated guess, but a guess nonetheless.

4 Reply

Alina Trigub

Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes

6y

@Michael Ealy

This type of chart/analysis is a good component for general population. For someone who's buying properties it doesn't offer the enough level of detail that we need to know about a specific market. For instance, you mentioned Phoenix AZ is a hot market. While it is true in general terms, the city has over 47 zip codes. I'm pretty sure not all of them are in high demand. So my point is, you have to research every potential area you want to invest in as the supply/demand as well as desirability is super hyper local.

I'd stay away from such overheated markets as Phoenix.

4 Reply

Gaspare U.

Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes

6y

@Alina Trigub you touched a topic that is very relevant to me. Do you have a go-to site or a process on how you come to determine what zip codes are in demand and which are not?

Looking to be a bit more efficient with this process? Thank you in advance!

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Greg Dickerson:

@Michael Ealy what I mean is you can always find deals with margin in every market cycle like you did but you can’t always find deals with margin in every market like the two markets you mentioned Austin and Phoenix. These are most likely producing yield plays and fee deals vs margin opportunities.

You and I are opportunistic investors and look for margin so we need less competitive markets but have more flexibility to strike when the deal is right.

I like how you think Greg - because we think alike. :)

Hot markets - given they are hot and competitive, good deals are harder to find. I kind of agree with that, although, good deals exist even in hot markets. Regardless, I will not lower my buying criteria simply because the market is hot. The deal has to work even when the market turns cold because all markets will eventually turn cold.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Brian Burke:

Dr. Mueller's market cycle monitor is an interesting report, but I don't use it to pick markets. Mostly because it tells you where things are now, or where they have been, but says little about where they are going to be in the future. That's kind of a problem with most market reports, however. As you said, just because a market is at position 12 today doesn't mean it goes to 13 or 14 tomorrow. In fact, it can go straight from 12 to 10 in a single quarter--I've seen that happen several times in the past with this study. Still worth looking at, nevertheless.

Other reports I like are the Milken Institute's Best Performing Cities Index, which should be releasing in the next month. And the PwC/ULI Emerging Trends in Real Estate report, which was just recently published (it comes out near the end of every year). Neither of these reports, nor the Mueller report are definitive, but when you see the same names pop up on all of these you should take notice.

For more submarket-specific data plus some forecasting into the future, I like the reports from Axiometrics and REIS. They aren't cheap, but they are cheaper than an acquisition or underwriting mistake...

As always Brian, your response is spot on and always helpful.

I agree that Dr Mueller's report is like looking at the rearview mirror. Things have happened already. In fact, when I look at the report in 2017, he said that Cincinnati is in a Hypersupply state. Good thing I didn't listen to that and still bought apartments and I got some really, really great deals as Cincinnati went back to Expansion phase and now back again to Hypersupply.

I will look into the other reports you mentioned. I am not a "macro-level" kind of investor but more "street-level" kind. I know Cincinnati because I live there and that's where I invest. I know the neighborhoods, and which streets are good and which ones to avoid. Investing in other states/cities - it's new for me, so the reports you mentioned are worthwhile looking into.

Thanks for sharing them here. If I can vote for your reply 10 times, I would :)

2 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Ben Leybovich:

You have to take all of these reports with a grain of salt. While Columbus, Austin, Raley, Phoenix, and New York are all grouped together in this graph, they are very different dynamically from one another. You are comparing 1M MSA in Columbus to 5M MSA in Phoenix to NY...

Milken is good, bit hyper-focused on technology, which may not provide enough flavor about the other sectors.

Ultimately, here we are. Today. Is the population story likely to continue in the MSA? Is the job growth story going to continue in the MSA? Is there an intrinsic barrier to entry relative to new development in the MSA, whatever it may be?

Maybe we are at 11 on the graph. Or, maybe we are at 9,25 on the same graph. Or, maybe we are at 11, but the green is going to stretch past 13...

This has never happened, but I agree with @Brian Burke - it seems to me that the forward-looking picture is what's really important. And, let's face it, all of us are making a guess at it; an educated guess, but a guess nonetheless.

It's good to talk with a smart investor like you. But hands down, Brian is the smarter one because he is the oldest one (LOL).

Seriously, I agree with looking at markets that will go up (forward looking) vs. looking at what happened and which markets have gone up. As Wayne Gretzky would say:

“I skate to where the puck is going, not where it has been.”

But as you said, in our game of Apartment Investing, knowing where a market is going is all an educated guess. It's more difficult than hockey but when you get it right, it's more exciting and profitable :)

2 Reply

Ola Dantis

Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes

6y

@Michael Ealy Happy New Year!!! 🎆 I see you are starting the new year with a bang lol

Typically, I read the ULI Emerging Report and find it to be comprehensive due to its overlap with other real estate sectors. For instance, I found that data centres and warehouse niches are becoming big drivers in real estate due to technology, and there is anticipated growth going into 2020.

Austin and Phoenix are definitely awesome markets to be in. For us, we are trying to get immersed in our market, Houston, hence my move to Katy, TX this year. That said, I think JAX, FL is also a good market.

I also read the Marcus & Millichap 2019 Multifamily Investment Forecast report because of its focus on Multifamily.

Houston and surrounding markets are our focus for the foreseeable future. Our strategic edge will be local alliance and local knowledge.

1 Reply

Alina Trigub

Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes

6y

Gaspare,

I don't have the go to website, but I typically look for existing heatmaps or have someone create it for us.

Originally posted by @Gaspare U.:

@Alina Trigub you touched a topic that is very relevant to me. Do you have a go-to site or a process on how you come to determine what zip codes are in demand and which are not?

Looking to be a bit more efficient with this process? Thank you in advance!

0 Reply

Gaspare U.

Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes

6y

@Alina Trigub thank you for the feedback.

0 Reply

Apartment Market Cycles and Best Cities to Buy

Apartment Market Cycles and Best Cities to Buy

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