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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. Afterall, 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%
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About the Author
Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital at www.bluelake-capital.com and learn more about Ellie at www.ellieperlman.com.
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