Want to grow your investment portfolio by investing in multifamily homes? Then consider investing in the best multifamily markets 2019!
Most beginner property investors start out their career with single-family homes and later transition into the multifamily sector. These properties are great for real estate investing for many reasons. For instance, they’re always in demand, they’re easier to manage because units are clustered together, and they reduce certain risks. However, before you start searching for and investing in multifamily real estate, you should know which cities in the US are the best multifamily markets 2019.
There’s a number of factors that make a certain market desirable for multifamily real estate investing. These include population growth (indicating a high rental demand), a strong economy, and job growth (indicating a high rental income). Another important factor to take into account is the cap rate of properties in the housing market. What is the cap rate and why does it matter for multifamily real estate investors?
Cap Rate in Real Estate Investing
One thing that all real estate investors share is the desire to find profitable investment properties that give them a high return on investment. The ROI can be measured with different metrics, one of which is the cap (capitalization) rate. This metric is usually the first to come to mind when evaluating and analyzing investment properties. It measures the rate of return based on the property’s value, rental income, and expenses. To calculate the cap rate, real estate investors use the following formula:
Cap Rate = (Net Operating Income / Current Market Value) x 100%
- NOI: the gross rental income minus the operating costs
- CMV: the market value of a real estate property at a certain time
Related: What Is Cap Rate in Real Estate Investing? A Simple Guide
Uses of Cap Rate for Real Estate Investors
Cap rate is a useful metric to evaluate the profitability of a certain rental property, neighborhood, or city. This is why you should count on it for finding the best multifamily markets 2019. But what does this percentage actually mean? There are 3 main uses for the cap rate in real estate investing:
- Return on Investment: As we said, this is the basic function of the cap rate formula. Linking the property’s value to its gross rental income to evaluate the rental property allows investors to estimate the profitability of that property.
- Screening Tool: If you’re still in the initial phase of your property search, you can also use the cap rate to quickly compare similar investment properties and decide which one suits your investment goals best.
- Level of Risk: Cap rates correspond to the levels of risk associated with investment properties. A high cap rate suggests a higher level of risk, whereas a low cap rate implies a lower level of risk. It’s up to the real estate investor to find the right balance and determine the best cap rate for the investment property that he/she wants to buy.
Related: What Is a Good Cap Rate When Investing in Multi Family Homes for Sale?
To search for multifamily homes for sale with a good cap rate in the US housing market, make use of Mashvisor’s Property Finder. Simply select the city/cities where you want to invest and adjust the filters to include only multifamily homes, set your budget, and even the number of bedrooms/bathrooms you want. The tool will then show you a list of all the high cap rate properties in that location that match your criteria. It’s that simple! But where in the US should you start searching?
The 15 Best Multifamily Markets 2019
After covering what is cap rate and why it’s a good metric to use when wondering where to invest in real estate, this leads us to our main question: What are the best multifamily markets 2019 with high cap rates? Analyzing data based on multifamily listings on Mashvisor, we found that these 15 cities are where property investors will find the most profitable multifamily homes for sale in the US housing market.
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Note: Keep in mind that these are city averages, meaning a property’s averages should be higher!
Trenton, NJ
- Median Property Price: $108,826
- Price Per Sq/Ft: $55
- Traditional Rental Income: $1,391
- Price-to-Rent Ratio: 7
- Walk Score: 72
- Cap Rate: 5%
Chattanooga, TN
- Median Property Price: $198,673
- Price Per Sq/Ft: $85
- Traditional Rental Income: $1,364
- Price-to-Rent Ratio: 12
- Walk Score: 29
- Cap Rate: 4%
Chico, CA
- Median Property Price: $709,098
- Price Per Sq/Ft: $234
- Traditional Rental Income: $4,826
- Price-to-Rent Ratio: 12
- Walk Score: 45
- Cap Rate: 4%
Cincinnati, OH
- Median Property Price: $182,895
- Price Per Sq/Ft: $67
- Traditional Rental Income: $1,206
- Price-to-Rent Ratio: 13
- Walk Score: 50
- Cap Rate: 3%
Norfolk, VA
- Median Property Price: $176,511
- Price Per Sq/Ft: $90
- Traditional Rental Income: $1,198
- Price-to-Rent Ratio: 12
- Walk Score: 45
- Cap Rate: 3%
Grand Rapids, MI
- Median Property Price: $176,617
- Price Per Sq/Ft: $85
- Traditional Rental Income: $1,164
- Price-to-Rent Ratio: 13
- Walk Score: 55
- Cap Rate: 3%
Orlando, FL
- Median Property Price: $267,981
- Price Per Sq/Ft: $185
- Traditional Rental Income: $1,518
- Price-to-Rent Ratio: 15
- Walk Score: 42
- Cap Rate: 3%
Anaheim, CA
- Median Property Price: $1,322,973
- Price Per Sq/Ft: $416
- Traditional Rental Income: $6,713
- Price-to-Rent Ratio: 16
- Walk Score: 54
- Cap Rate: 3%
Columbus, OH
- Median Property Price: $185,943
- Price Per Sq/Ft: $80
- Traditional Rental Income: $1,124
- Price-to-Rent Ratio: 14
- Walk Score: 41
- Cap Rate: 3%
Riverside, CA
- Median Property Price: $665,107
- Price Per Sq/Ft: $377
- Traditional Rental Income: $3,229
- Price-to-Rent Ratio: 17
- Walk Score: 41
- Cap Rate: 3%
San Bernardino, CA
- Median Property Price: $417,717
- Price Per Sq/Ft: $346
- Traditional Rental Income: $2,411
- Price-to-Rent Ratio: 14
- Walk Score: 42
- Cap Rate: 3%
Tampa, FL
- Median Property Price: $270,041
- Price Per Sq/Ft: $131
- Traditional Rental Income: $1,226
- Price-to-Rent Ratio: 18
- Walk Score: 50
- Cap Rate: 3%
Atlanta, GA
- Median Property Price: $404,897
- Price Per Sq/Ft: $192
- Traditional Rental Income: $1,782
- Price-to-Rent Ratio: 19
- Walk Score: 49
- Cap Rate: 3%
Philadelphia, PA
- Median Property Price: $367,853
- Price Per Sq/Ft: $17,328
- Traditional Rental Income: $1,387
- Price-to-Rent Ratio: 22
- Walk Score: 79
- Cap Rate: 3%
Baltimore, MD
- Median Property Price: $257,910
- Price Per Sq/Ft: $714
- Traditional Rental Income: $1,564
- Price-to-Rent Ratio: 14
- Walk Score: 69
- Cap Rate: 3%
Sign up for Mashvisor to start looking for and analyzing the best multifamily investment properties in the city and neighborhood of your choice!
Additional Trends in the Best Multifamily Markets 2019
If high cap rate is not enough for you to consider investing in one of these cities, here’s a few facts that might. First, the majority are among the most affordable housing markets in the country. 9 cities have a median property price below the national average of $300,000. What’s more, 6 of these have a median property price of below $200,000! It’s definitely lucrative to own rental properties in cities with high cap rates and low prices, making them the best multifamily markets 2019.
Secondly, most of these real estate markets have a price-to-rent ratio of above 15, meaning residents find it better to be a renter rather than a homebuyer. In addition, the good quality of life in these cities are driving the demand for multifamily homes as the population of people moving to these cities is increasing. Not only that, but some of these cities even made it on the list of markets to watch in 2019 according to the PwC’s Emerging Trends in Real Estate Report.
Related: 10 Best Places to Invest in Real Estate in 2019
Lastly, the average traditional rental income of these housing markets is also very good. All of them have an average rental income of over $1,000, and 4 have a rental income of well over $2,000! Therefore, a rental property in these cities has the potential to generate positive cash flow, which is another reason why these are the best multifamily markets 2019.
Are you ready to start searching for multifamily homes for sale? To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today and enjoy 15% off for life.