The Top 10 Markets for Smaller Multifamily Investors

The pandemic disrupted not only how Americans work, but also where they live. No longer reaping the benefits of the live-work-play lifestyle, residents of top-tier cities went in search of more affordable housing options. While some markets fell out of favor and posted losses throughout the last year, others thrived and generated high returns for apartment owners.

Using data from CoStar, the parent company and publisher of LoopNet, we analyzed markets with property sales priced at $20 million and below to develop a list of the top 10 markets that smaller investors should consider when purchasing multifamily properties.

We based our analysis primarily on three key factors for multifamily investment:

• Liquidity: The rate at which properties are traded for stable prices. Trade volume was determined in this case using the total number of apartment sales under $20 million since 2018.
• Rent growth: Year-over-year (YOY) rent increases from the first quarter of 2020 to the first quarter of 2021.
• Demand: Net absorption of units (change in occupancy and vacancy) over the last four quarters ending in the first quarter of 2021, defined as a share of existing inventory.

Our ranking also took into account average rent prices (a total average of rent per unit across all unit types), supply risk, cap rates and vacancy levels as of the end of the first quarter.

The markets that stand out for multifamily investment have a defining theme — they’re characterized by affordability, offering a less expensive alternative to nearby top-tier markets where the pandemic paused in-person office work. They also exhibited strong year-over-year rent growth, which enabled investors to profit even throughout the pandemic. Save for the Inland Empire, all of these markets offer average rents below the national average of $1,401 per month, and also experienced rent growth well above the national average of 2.9%.

All of these markets also experienced strong trading volume over the past year, with liquidity rates ranging from 22% in Spokane, Washington, at the low end of the spectrum (which is still above the national average of 20.7%) to Phoenix’s rate of 40%. Further, cap rates in these markets range from 5.4% in Inland Empire, California to 7.6% in Indianapolis, providing investors with stable property options with strong returns.

Without further ado, here is LoopNet’s list of the top 10 markets for multifamily investment opportunities under $20 million in 2021:

1. Fresno, California
2. Stockton, California
3. Inland Empire, California
4. Tucson, Arizona
5. Las Vegas
6. Albuquerque, New Mexico
7. Spokane, Washington
8. Phoenix
9. Indianapolis
10. Atlanta

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