Top 12 Markets for US Multifamily Total Returns

[Ellie Perlman]

When investing in real estate in general, and multifamily in particular, selecting the right market is critical. I personally like multifamily because this asset class outperform all other asset classes. According to CBRE, “Over the past 25 years, multifamily investment has had the highest average returns of any commercial real estate asset class. The 9.8% average annual return is slightly ahead of industrial, and more than 100 basis points greater than office.” But, not all markets perform the same, and knowing which markets are performing well and still generating strong returns, even in a pandemic, is very important information to consider when committing to a potential investment. The reality is that we are now in a recession, and while 9.8% return might not be a realistic expectation in many markets these days, many markets are still capable of achieving solid returns.

Another factor to also pay close attention to is cap rates. Cap Rate indicates the investment risk and calculates what your return could be if you paid for it with 100% cash (no leverage or financing involved). Cap rates are used to value commercial properties in relation to other comparable properties (“comps”) in the area. As a rule of thumb, an attractive investment is to purchase a property with a higher cap rate than its comparable properties in the area, and sell it at a lower cap rate than the one you bought it for. The reason for this is because the lower the cap rate, the more the property will be worth.

Finally, above all else, is demand. Being aware of the percentage of renters within each market, as well as the number of competitors, including new development, is another key factor to take into consideration. After all, even if you get a great deal, without a stable tenant base, the property will not be profitable.

Here are the 2nd quarter of 2020 top 12 markets for US multifamily total returns:

12. Boston, MA

Annualized Total Return: 3.7%

2020 Average Cap Rates: 4.6% - 6.0%

Renter Percentage: 38.16%

11. Palm Beach, FL

Annualized Total Return: 4.0%

2020 Average Cap Rates: 4.6% - 6.0%

Renter Percentage: 30.52%

10. Seattle, WA

Annualized Total Return: 4.1%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 40.01%

9. Atlanta, GA

Annualized Total Return: 4.2%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 37.04%

8. Fort Lauderdale, FL

Annualized Total Return: 4.7%

2020 Average Cap Rates: 4.6% - 6.0%

Renter Percentage: 50%

7. Minneapolis, MN

Annualized Total Return: 5.0%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 28.43%

6. Tampa, FL

Annualized Total Return: 5.2%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 35.62%

5. Denver, CO

Annualized Total Return: 5.5%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 35.86%

4. Austin, TX

Annualized Total Return: 5.8%

2020 Average Cap Rates: 4.6% - 6.0%

Renter Percentage: 42.29%

3. Orlando, FL

Annualized Total Return: 6.8%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 40.68%

2. Charlotte, NC

Annualized Total Return: 6.9%

2020 Average Cap Rates: 4.5% - 6.1%

Renter Percentage: 47.10%

1. Phoenix, AZ

Annualized Total Return: 10.5%

2020 Average Cap Rates: 4.6% - 6.0%

Renter Percentage: 36.33%

Sources:

Newmark Knight Frank 2Q20 US Multifamily Markets Report

www.Apartmentloanstore.com

Department of Numbers

[Jarrod Kohl]

Thank for the info, happy to see Boston on the list. I have seen a lot of activity in Boston MF lately and though high cap rates can be hard for buyers to find, the tenant quality in the Boston area is very solid.