The old adage in real estate is “location, location, location.”

Investing in multifamily real estate is no exception. 

While no market can guarantee a return, the market you choose to invest in will influence your chances of success. Read on as we break down how savvy real estate investors choose the best multifamily markets to invest in. 

What Makes For a Good Multifamily Real Estate Market?

Our team at Colony Hills Capital has done over $1B in transactions in fifteen years. Over the years, we’ve honed our investment criteria and will look for the following factors to determine whether it’s a good investment or not. 

  • Economic growth: We look for areas with strong economic growth, as this often leads to increased demand for housing. Indicators of economic growth include a low unemployment rate, the presence of major employers, or significant job creation, particularly in stable and expanding sectors like technology, healthcare, and education.
  • Population growth: Markets experiencing population growth tend to have a higher demand for rental properties. This can be due to various factors including an influx of new residents coming for jobs, educational opportunities, or better living conditions.
  • Rental yield: The potential rental income compared to the property cost is crucial. Higher rental yields indicate more income potential from rent relative to the investment cost.
  • Vacancy rates: Lower vacancy rates indicate a healthy demand for rentals. A low vacancy rate coupled with strong rental growth can be a sign of a robust rental market.
  • Industry diversity: Markets supported by a diverse range of industries are less likely to suffer from economic fluctuations, thereby providing a more stable tenant base.

These factors are no guarantee of a “sure thing.” That said, they help us compare the potential between opportunities.

How Real Estate Investors Find The Best Markets To Invest In

Seasoned real estate investors, like our expert team at Colony Hills Capital, are constantly on the hunt for new properties to invest in. 

We’ll judge investment opportunities by the factors listed above. We also look for additional criteria to find especially attractive investment opportunities for our investors:

  • Value-add potential 
  • Cash flow

Value-Add Potential

We specialize in value-add multifamily property, which represents the highest-demand sector of rental properties. While there are no guarantees, these properties are considered “recession-proof” due to their price points and ability to weather financial storms while performing well in financial boom times. 

By seeking out properties that are underperforming or undermanaged, we stand a better chance of appreciating the property and generating a return on the sale through targeted improvements and active management.

The Importance of Cash Flow

Beyond a growing market, our team looks for the ability to build cash flow.

90% of the revenue from most investments is derived from Net Rental Revenue, so closely scrutinizing the spread between existing rents and market rents is essential. The remaining 10% of revenue results from “strategic operational improvements” and can be derived from such things as utility reimbursements, bulk cable deals, revenue sharing from co-branding opportunities, and storage rental units.

In some instances, amenities can also generate revenue. For example, a well-planned clubhouse can be rented to tenants for private events. 

By seeking out properties that could increase in value with strategic enhancements and generate consistent cash flow, we’re able to identify the best opportunities for our investors.

The 6 Best Multifamily Real Estate Markets To Invest In

Here are six favorite real estate markets to invest in. We’ve invested in 36 properties across these states over the years.

New Jersey

New Jersey’s proximity to major metropolitan areas like New York City and Philadelphia makes it an attractive location for multifamily real estate investments. The state features a robust transportation network, making it convenient for commuters and attracting a diverse tenant base. With a high population density and strong demand for rental housing, particularly in urban areas like Jersey City and Newark, investors can benefit from relatively stable rental yields and low vacancy rates.

Connecticut

Connecticut offers a blend of urban and suburban living, appealing to both families and professionals. The presence of major industries such as finance, insurance, and manufacturing, along with renowned educational institutions, drives steady rental demand. Its proximity to New York City also makes parts of Connecticut a desirable choice for those who prefer a quieter lifestyle while working in the city, supporting healthy multifamily market conditions.

Georgia

Georgia, particularly the Atlanta metropolitan area, has been experiencing rapid economic and population growth, making it a prime market for multifamily investments. Atlanta’s role as a commercial and cultural hub in the Southeast, coupled with its affordable cost of living compared to other major U.S. cities, attracts a diverse workforce. The expanding tech sector and substantial educational institutions ensure a continual demand for rental properties.

Texas

Texas boasts several rapidly growing metropolitan areas, such as Dallas, Austin, and Houston, each offering unique opportunities for multifamily real estate investments. The state’s favorable business climate and lack of state income tax attract corporations and individuals alike, promoting population growth. The diverse economy and significant job creation in sectors like technology, healthcare, and energy contribute to a strong demand for multifamily housing.

Alabama

Alabama offers an appealing multifamily investment landscape due to its affordable property prices and growing economy. Cities like Birmingham, Huntsville, and Mobile are experiencing economic revitalization, driven by advances in manufacturing, technology, and aerospace. Alabama’s lower cost of living, combined with investment in urban renewal and infrastructure, enhances its attractiveness to renters looking for affordable options.

Florida

Florida’s multifamily real estate market benefits from continuous population growth, driven by its favorable climate, retirement communities, and thriving tourism industry. Cities like Miami, Tampa, and Orlando offer vibrant urban environments with a strong demand for rentals, supported by a booming service sector and a significant influx of both domestic and international migrants. The state’s lack of income tax and ongoing development projects make it a lucrative market for investors.

Ready to Invest in Multifamily Real Estate?

Ready to invest in multifamily real estate?

Even with the above guidance, choosing the right market can be a big decision.  At Colony Hills Capital we specialize in purchasing value-add multifamily real estate properties through our finds and deals, allowing our investors to benefit from passive income as well as the appreciation of each property when it is sold. 

Past performance is no guarantee of future results. Contact us today to learn more.