5 Ways to Identify the Best Markets for Multifamily Real Estate Investments

Forget the top 25. Smaller, emerging markets are the real best spots for you real estate dollars. Let us tell you why.

Most people want to buy in a boomtown. Those are the places where real estate investing dollars appear to be made hand over fist. Those are the places where lenders line up to spend money on every condo unit, neighborhood concept, and apartment complex that features all the new amenities from swim-up pool bars to trails access to on-site pet salons to 10-foot ceilings. At least, that is what we hear through traditional media, podcasts and in investing forums.

Some of that is true. But that is not the only way to make money in real estate. In fact, acquiring properties in a boomtown can be incredibly competitive and therefore expensive, which could price out small-to-midrange investors.

At Lima One Capital, we see that many successful investors find much better deals and profit in markets that are smaller and emerging. For example, we’ve seen investors succeed on multifamily investments in secondary and tertiary MSAs like Akron, Ohio, and Texarkana, Texas.

Why do we support investors in these markets with multifamily real estate financing? Let us share five big reasons.

  1. We all know that real estate works in cycles, and a good investment can turn bad in a down economy. However, multifamily investments in workforce housing tend to weather economic downturns better because of more affordable rents. These rents remain attractive to people who are looking to save money on a place to live and who realize the pet salon, pool bar and trails aren’t needed to get a good night’s sleep. They also can draw people who need to downsize on rent, or who can’t purchase homes for a time because interest rates have spiked.
  2. There is less competition from new multi-family stock. People like shiny objects, and real estate investors are no different. An apartment with super amenities will catch a renter’s eye faster than one without them.  A metro area that is creating a lot of slick, new multi-family units will often leave a gap for more affordable housing options. It’s supply and demand. Smaller markets have fewer new options, so by upgrading an older complex, you get a lot of the benefits of building new, but with less of the financial burden.
  3. Many of the smaller metros have economic data that is proven and easy to predict. A smart investor with local knowledge can give a better forecast of what will work and not work in these markets. A larger, more dynamic market tends to have data that is harder to decipher because things are changing rapidly.
  4. We are bullish on multi-family because it gives you a diversity of rental agreements. For example, if you were investing in industrial, office or even single-family rentals, you are tied in with one agreement with one tenant. Multi-family gives you numerous rents, which in turn gives you more flexibility as things are constantly turning over because of the natural flow of tenants coming and going. In periods when inflation becomes a concern, management of a multifamily real estate property can be more responsive to market price increases.
  5. The market is favoring multifamily housing, especially in smaller metro areas.  Latest US Census data shows the number of people owning homes is hovering nationwide at about 64 percent, and rental vacancy is about 7 percent. Meanwhile, the median rental rate has risen from just over to $700 per month to $1,000 per month in the last 10 years. Home ownership rates per market tend to fluctuate. Some smaller metros have higher than average home-owner rates, while others are much lower. The reminder here is to do your homework into the specific secondary or tertiary market you’re considering.

Lima One Capital is the nation’s premier lender for real estate investors. We make it easy to finance your fix-and-flip projects, rental properties, and multifamily investments. The Lima One Capital Multifamily program offers investors both a value-add rehab and stabilized option for their multifamily properties. Click here to learn more about the multifamily property loans from Lima One Capital.