10 Best and 10 Worst Locations to Buy an Apartment Building

August 21, 2017

The multifamily real estate cycle is always fluctuating. In fact, it tends to differ in different marketplaces. For instance, the multifamily market may be doing poorly in one area and soaring in another. Find out the 10 best and 10 worst locations to buy an apartment building below: 


10 Best Locations to Invest In

  • Boston, Massachusetts – With two of the world’s finest universities, world-class hospitals and a highly educated workforce, Boston’s rental market has a strong foundation for a growing rental market. In fact, Boston is known for its low turnover rates and steady vacancy rate at around 4%. 

  • Denver, Colorado – Its labor force is expanding at an accelerated rate, resulting in a 3.2% unemployment rate. Denver rents have increased by 60% since 2012. 

  • Des Moines, Iowa –Des Moines was voted the most affordable place to live in a recent U.S. News & World Report. For 2016, total vacancy rates were just 5.2%. From 2016 to 2017 rental rates for three-bedroom apartments are expected to increase by 6.8%, compared to 2.6% the previous year.

  • Raleigh and Durham, North Carolina –It is home to three major U.S. universities: Duke University, the University of North Carolina-Chapel Hill and North Carolina State University, making rental demands high. Also. low cost of living contributes to steady population growth.

  • Salt Lake City, Utah – In addition to being named a “NextTech” market, the financial and insurance sectors here have grown by as much as four times the national average, helping the labor force to expand by 10% since 2008. Rent growth was just over 7% in the first quarter and vacancy rates are at 4%. Average cap rates in the low 5% range.

  • San Jose, CA - San Jose has achieved technology sector employment levels that were 15% higher than peaks achieved pre-recession. Vacancy rates averaged 4.75%and asking rents were at $2,580, an increase of 2% over the year before. 

  • Seattle – Home to Microsoft, Amazon and Starbucks, which attracts the young and educated, causing rents to soar. Average cap rates hit 5%. 

  • Charlotte, NC - Unemployment is at 4% and the population averages around age 36.9. Net absorption is looking to rebound somewhat by 2018.  Multifamily vacancy rates could dip below 7.0 percent in 2017.

  • Washington DC – Its government, non-profit and legal sectors provide a strong locomotive power attracting the young and well-educated to Georgetown, DuPont Circle, Logan Circle and West End. This is a very transient population, making this market ideal for multifamily owners. The overflow of demand is also benefiting newer sub-markets, including Eckington and Takoma Park, resulting in strong absorption and occupancy rates of 95% or better.

10 Worst Locations to Invest In

 

  • Cleveland – Cleveland is expected to add an estimated 15,000 jobs in 2017, thanks to the healthcare research and development sectors. Yet investors should use caution, because new multifamily supply here is looking like it will outpace demand.

  • Houston – Houston’s exceptional growth was tied to the oil market, which has since taken a nosedive. Expect to see a period of rising vacancy rates and declining rent growth.

  • Kansas City, Mo – Kansas City’s recovery has been underwhelming due to the declining job market. It has an average population size, meager job growth and affordability of single-family homes to keep the rental market demands low.

  • Los Angeles, CA – In California, state legislators are aiming to repeal the Costa-Hawkins Act of 1995, which will enforce rent control everywhere. With its tight rent restrictions and low cap rates, investors have less incentive to be in the apartment building ownership and development business.

  • New York City –The vacancy rate is likely to remain low, but the high-end apartment segment is likely to experience more rent concessions. Job growth in the city is expected to slow down. 

  • Oakland, CA – The Oakland market is experiencing a huge influx of renters overflowing from the San Francisco and San Jose markets, leading to increased developments. Rents grew by more than 7% on annually, which is believed to be unsustainable.

  • Orange County, CA –It is dependent on national and local housing conditions. Construction jobs account for about 5.9% of all jobs in the metro area, compared with 4.5% nationally. That leaves Orange County vulnerable in the case of a construction slowdown.

  • Orlando, FloridaStrong tourism added more than 50,000 jobs in 2016, expanding employment by 4.5%. There is rapid new apartment development; however, the condominium market could be a potential downfall. Thousands of condominium units were either built or newly converted. Investors don’t want to get caught in a cycle of unconstrained development activity.

  • Phoenix –It has two potential trouble spots: more than 40% of units are in North Tempe and Central Phoenix, which may cause overbuilding. Tourism is the city’s fifth largest employer. The construction sector represents about 5.5% of employment. It is volatile historically and can experience softness due to sudden layoffs.

  • Tampa, Florida –Tampa’s employment segment has not yet recovered all of the jobs that it lost in the downturn. Steady deliveries of inventory pushed vacancies up to about 4.8%. Rent growth is in the range of 2.5%. The relatively low cost of single-family homes is keeping demand for rental units in low.


With the above in mind, it is important to do your due diligence before buying or selling in any of the marketplaces mentioned above. If you’re interested in purchasing or selling a property, we can assist you. Please contact us by calling 818-915-9118 or emailing anie@mayeliangroup.com
 

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