How to Spot Emerging Multifamily Markets

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Three Multifamily Markets on the Rise (and Two Heading for a Stall)

Some of the U.S.'s largest cities (like Seattle, NYC, and San Francisco) have long been known for their rental markets, but there are some smaller and often underrated jewels that can provide multifamily investors with strong, stable growth.

Nashville may be known as Music City, but its renewed focus on tourism and business-friendly tax policies have led to nearly 3 percent job growth each year, and this trend is expected to continue through 2022. With more young renters entering the job market, the housing market has followed suit, and multifamily investors can look forward to low vacancy rates and stable rents for years to come.

Another southern up-and-comer is Charlotte, a laid-back city that houses the headquarters for Bayer, Bank of America, Duke Energy, Lowe's Home Improvement, and other household names. Charlotte's low cost of living makes it an attractive option for both singles and families.

And Salt Lake City is predicted to enjoy a 12.6 percent increase in average rents over the next two years, with investors' net operating income projected to increase by 3.4 percent per year until 2021. As another city with booming business growth and a moderate cost of living, SLC is expanding its multifamily housing market by leaps and bounds.

But two of the country's largest markets are starting to falter. While Chicago and Washington D.C. still have strong fundamentals, they're beginning to experience growing pains as the number of new multifamily units built outpaces the pool of potential renters. In some parts of these cities (and the surrounding suburbs), rental prices have begun to flatten while vacancy rates are holding steady or increasing.

Some Market Indicators to Watch

Since it can take some time to put financing arrangements in place and choose a target property in your city of choice, waiting until the media points out a certain city or neighborhood as an up-and-comer can mean missing out on some of the best buying opportunities. Keeping an eye on some key indicators can give you a sense of when a market is on the rise.

An influx (or expansion) of businesses that focus on technology, hospitality, medicine, or finance. These industries tend to attract a higher-than-average number of young professionals, many of whom are more likely to rent than own.

A steady—but not too rapid—increase in multifamily housing starts. When businesses move into a city, the multifamily construction market often follows, but over-building can flood the market with rentals, depress rental rates, and increase tenant turnover. Cities with strong planning systems can absorb new tenants while keeping the market competitive.

A change in a city's demographics can also correlate to an expansion (or contraction) of the multifamily market. College students, transplants from outside the state, and temporary workers are almost always renters, while families with teenagers or new retirees are often more likely to buy than rent.

Keeping these factors in mind as you browse for the perfect buying opportunity can ensure you don't overpay for your property or enter the local market at an inopportune time.

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