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Updated about 4 years ago, 10/23/2020
How to forecast demand in multifamily in a certain area?
I come from a background in single family residential new construction. We typically use a metric called Months of Inventory to forecast demand for product in a certain price segment in a certain area. History has taught us that 3-6 months of inventory will result in normal sales, less than 3 months of inventory will result in quick sales, and more than 6 months of inventory will result in slow sales.
Months of inventory is calculated by taking the current number of listings divided by the number of sales in the previous twelve months.
An example would be:
There are currently 24 homes listed in Anytown, USA in the $250,000 - $300,000 price point. There have been 96 sales in the previous twelve months in that price bracket.
Months of inventory = 24 / 96 = .25 years = 3 months of inventory (we would expect brisk sales if we build a new home in this market at that price point)
Is there a similar metric for multifamily rentals? If not, what do seasoned investors use to forecast demand?