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Have you been thinking about investing in multifamily but have been “sitting on the fence”, waiting to make your move because you’ve been unsure about the direction that the market is heading in?

The good news is that most economic analysts feel that 2020 is going to be the best year for multifamily yet so if you’ve been waiting for the right time to arrive for you to invest in multifamily properties, the time is now.

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Multifamily Vacancy Expected to Rise Nationwide

Thanks to the demand for multifamily properties, vacancy is expected to rise this year as builders in most states struggle to build new units fast enough to satisfy the demand multifamily rentals nationwide.

These days it’s not uncommon for every generation from Baby Boomers, to Millennials, to be renting multifamily properties. Why? Home prices in states like California make home ownership out of reach for many people so renting is the only other option. For other renters that can afford to buy homes, it’s not uncommon for them to continue renting because they like the freedoms that come from renting vs. buying.

How much will the vacancy rise by this year? Some industry watchers feel that it’s going to rise by at least 20 basis points to about 4.5 percent. It’s also possible that rent growth will slow this year to about 2.4 percent as well.

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How Many New Multifamily Units Can We Expect This Year?

There’s no doubt that we have a supply vs. demand problem in the United States, especially in cities like Los Angeles, New York and Portland, Oregon where construction has lagged far behind demand for rental properties for years.

The good news is that developers are expected to deliver close to 300,000 units nationwide this year and deliveries are predicted to be on par with where they were last year.

As of January 2020, permits and starts are down and if this trend continues it’s an indication that we could see supply drop in the coming years.

Where Will the Top Performing Rental Markets Be In 2020?

If you’re an investor who is looking for multifamily properties out of state, the hot rental markets in 2020 are predicted to be Phoenix, Atlanta, Austin, and Boston. What’s interesting is that CBRE stated recently that they predict that suburban multifamily will be outperforming urban multifamily when it comes to renting growth and returns.

It makes sense that most developers are eying “the burbs” for building multifamily properties instead of in downtown “urban” areas.

Since cities like Los Angles are balking at building more multifamily properties in densely populated areas, developers are turning their attention to suburban areas where they can build garden apartment and mid-rise projects.

The “hot spot” suburban areas for building in 2020 are predicted to be cities that have populations under two million people. As of today, the cities that are getting the most attention from developers are Albuquerque, Phoenix, Colorado Springs, Greensboro, Tucson, Dayton, and Memphis.

There is a concern among some economic analysts that the Phoenix market could be in for trouble in the near future because even though construction starts, deliveries, net absorption, and rental rates are good, the cost of renting in Phoenix has been going up and an average employee in the area must earn $20 per hour to rent a two-bedroom apartment. The average employee in the Phoenix area is earning about $17 per hour right now so as you can see if the cost of renting doesn’t slow down in Phoenix, renting may ultimately become unaffordable for many workers there.

Will 2020 Be the Year for Rent Control?

 Last year we saw states like California and Oregon make major strides when it came to adopting rent control measures. Will 2020 be the year for rent control nationwide? Since it’s an election year, we can expect many Democrats, including Bernie Sanders, to embrace rent control and feature it as part of their campaigns.

Even though California and Oregon have become rent control friendly states, joining New York, New Jersey, and Maryland, the good news is that there still are plenty of states that oppose rent control and don’t have any plans on adopting rent control measures any time soon.

If rent control where to be adopted on a Federal level as politicians like Bernie Sanders hope, it could be years before such legislation takes effect.

As of today, most economists nationwide are against rent control and feel that it’s one of the worst economic policies to ever get passed in the United States.

“Rent-control laws disproportionately benefit the non-poor because the elite pull strings, work the system and are better connected than the non-poor.”

Larry Elder

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Workforce Multifamily Housing Remains Will Continue to Be Huge In 2020

As in previous years, workforce multifamily housing will continue to be huge in 2020 since more people want to live multifamily properties that are closer to their jobs.

Even though most investors will always favor states like California for multifamily investment, the reality is that rental markets with a moderately priced investor in the other Sun Belt states like Texas, New Mexico, Mississippi and Florida are also getting a lot of attention from multifamily investors these days as well.

Lessons Learned

2020 is going to be another great year for multifamily property investments in the United States thanks to demand from renters and favorable interest rates. Before investing in a multifamily property make sure you do thorough research into an area and to confirm that you’re investing in an area where there will be demand for multifamily properties for years to come.

 

Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.