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Top 5 Markets for Multifamily Investment in 2022
With rent growth beginning to decelerate in many markets, where is the best place to deploy your capital for your next apartment property?
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!After the roller coaster ride of 2020 came to an end, multifamily investors benefited from unprecedented growth in virtually every major market across the country. Rent growth finished 2021 at a stunning 12.5% nationwide, according to a report from Arbor, with many metros — particularly those in the Sun Belt — performing even stronger.
This has led to a shift in multifamily investment dynamics. While core, gateway markets like San Francisco, New York, and Los Angeles will always draw significant capital, this does not always correlate strongly with investment returns, which have lagged the national average in most primary markets.
If you’re looking for your next multifamily real estate investment — or even your first — you could do worse than picking a location in the Sun Belt. But no two metros have the same dynamics, and some are far riper for investment opportunities than others. Check out which five metros made the list for multifamily investment below.
Rank | Market | 2022 Rent Growth (Projected) | Annualized MF Returns (H1 2022) |
|---|---|---|---|
1 | Orlando | 10.3% | 30.4% |
2 | Dallas | 11.7% | 17.7% |
3 | Miami | 10.1% | 34.7% |
4 | Austin | 8.0% | 30.5% |
5 | Tampa | 10.2% | 35.7% |
This ranking was determined by scoring data for 20 top multifamily markets in the U.S. from several reliable sources. Yardi Matrix projected rent growth figures for 2022. The Bureau of Labor Statistics provided employment and income data. The National Association of REALTORS® reported on median home prices by metro, and Newmark provided information on multifamily returns.
5. Tampa
One of three Floridian markets on our top five list, the Tampa Bay market has become increasingly attractive in recent years. Rents have been swiftly rising here, as in all Sun Belt metros, and they’re expected to end the year strong. A Yardi Matrix report forecasts rent growth of 10.2% for the calendar year. While a slowdown in growth is inevitable, a steady influx of people during the pandemic will keep rents growing faster than at the national level. And multifamily property values reflect that, as highlighted by the Tampa Bay Business Journal in May this year.
It isn’t just multifamily assets that are pricing themselves higher and higher, though: Single-family home prices increased by a staggering 28% between the second quarters of 2021 and 2022, as described in a report by the National Association of REALTORS®. Although rising borrowing costs may have a chilling effect on future increases, it is unlikely that homeownership will significantly increase in the near term.
4. Austin
Nearly everyone in the multifamily space has been talking about Austin for years. And for good reason: The major shift of companies and young professionals to the area has transformed Texas’ capital in many ways. A second-quarter report from Marcus & Millichap touches on Austin’s growing affordability issues, and how this is a boon for multifamily investors.
While Austin’s relatively strong rent growth is likely to continue for a while longer, owing to ever-strong multifamily demand. Employment growth will keep pace, up 6% year-over-year in July, according to the Bureau of Labor Statistics. What this high-level figure doesn’t illustrate, however, is the rate of growth in higher-wage office-using employment, which increased by 9% during the same period.
3. Miami
While many gateway markets have trailed behind faster-growing secondary markets, Miami stands out as the exception. Particularly in terms of luxury rentals, South Florida is on fire: More than half of the multifamily assets traded in the first four months of the year were upscale communities. And pricing has exploded, with properties transacted during that period averaging north of $300,000 per unit.
While it may be more expensive to buy in Miami today than it was a year ago, Newmark reported that total annualized returns at the market level hovered around the 35% mark in the first half of 2022. And rents are set to continue climbing into the double digits by the end of the year, owing to demographic shifts, ongoing corporate relocations, and a relatively limited amount of construction activity.
2. Dallas
The Dallas-Fort Worth metro has long been one of the fastest-growing metros in the U.S., and as a result, it boasts one of the strongest multifamily markets in the country. Thanks to a flood of corporate relocations in the past five years, the metro — and particularly Dallas’ northern submarkets — has transformed.
Although multifamily development activity has historically kept pace to some extent with increasing demand, new deliveries only accounted for 2.6% of inventory in August, the report from Yardi Matrix shows. This could be an early sign of vacancies falling more rapidly, which will serve to accelerate rent growth, already set to hit 11.7% for 2022.
1. Orlando
The top market on our list, Orlando, is firing on all cylinders. While it’s true the metro had its share of challenges early on in the pandemic, as its well-known theme parks shut their doors for an extended period, there are few lingering effects of this on the local economy today. Unemployment stood at 3% in July, 50 basis points tighter than the national figure. And although employment in the leisure and hospitality sector has yet to fully recover to pre-pandemic levels, the sector reported job growth of 14.4% over the year through July.
Multifamily investments have performed strongly in the past year in Orlando, and all signs indicate this will continue. The previously mentioned Newmark report pegged annualized returns for the market at an impressive 30.4%. Although multifamily sale prices have seen a serious uptick, they still may have a long way to go. This is particularly true in light of major infrastructural changes coming, like the Brightline’s expansion to the city, set for completion early next year.
Related Questions
What are the best markets for multifamily investment in 2022?
The best markets for multifamily investment in 2022 are Orlando and Miami. According to the Top 5 Markets for Multifamily Investment in 2022 article, Orlando has seen strong multifamily investments in the past year and is expected to continue to do so. The Newmark report pegged annualized returns for the market at an impressive 30.4%. In Miami, luxury rentals have been particularly popular, with properties transacted during the first four months of the year averaging north of $300,000 per unit. Total annualized returns at the market level hovered around the 35% mark in the first half of 2022.
What are the key factors to consider when investing in multifamily real estate?
When investing in multifamily real estate, there are several key factors to consider. First, you need to determine the type of property you want to purchase, such as a duplex, triplex, quadplex, townhome, or other housing asset designed for multiple families. You should also consider the market conditions, available capital, and operational plans for each property type. Additionally, you need to decide how you will handle the everyday operations of the property. You may choose to manage the property yourself, or you may need to hire a property management company to help. Finally, you should be aware of the operating expenditures associated with the property.
What are the benefits of investing in multifamily real estate?
Investing in multifamily real estate can provide a number of benefits, including potential for high investment returns, the ability to take advantage of compounding returns, and the ability to diversify your investment portfolio. Additionally, multifamily properties provide reliable monthly cash flow from renters due to reduced risk of vacancies.
For more information, please see the following sources:
What are the risks associated with investing in multifamily real estate?
The risks associated with investing in multifamily real estate include expensive purchase costs, rising construction costs, construction delays, and the possibility that the renovation work may not be enough to get the desired investment outcome. Buying multifamily properties is significantly more expensive than buying single-family homes, therefore, it is usually hard to enter the market as a first-time real estate investor. Banks are usually eager to provide loans, but buyers should be able to come with around a 20% downpayment, depending on the real estate market or the size of the property. Source 1.
Construction costs have risen dramatically over the past few years, impacting both ground-up development projects and renovation work. Source 2. Construction delays are also an unfortunate fact of life, so it may be best to take a very conservative approach in terms of your project timeline. Finally, your renovation work may simply not be enough to get the investment outcome you’re looking for. Source 2.
What are the current trends in multifamily real estate investment?
The multifamily sector has long been regarded as one of the safest investment options in times of uncertainty. The persistent housing shortage and the rapidly rising cost of owning a home are driving healthy property fundamentals, making multifamily the desired investment option. According to Freddie Mac®’s predictions, multifamily origination volume is estimated to expand to $317 billion in 2019, a nearly 4% increase from the approximate $305 billion of multifamily financing originated in 2018. Factors that can be attributed to this trend include consistent investor demand for apartment properties, as well as other market forces, including a strong economy, reasonable job growth, and low interest rates.
What are the most important metrics to consider when evaluating a multifamily investment opportunity?
The most important metrics to consider when evaluating a multifamily investment opportunity are cap rate, cash-on-cash return, internal rate of return (IRR), and equity multiple. These metrics help investors understand the potential return on investment (ROI) of a multifamily property. Additionally, investors should consider ways to improve their ROI, such as increasing rent, reducing expenses, and boosting resident retention.