Commercial Multifamily Investment Properties – follow the Trend. As an investment, the multifamily market seems to be providing the best overall value. Like all real estate investments it is important to analysis each area closely. A lot of investors will start out analyzing a property by looking at the CAP rate. But not all CAP rates are created equal. The CCIM Investment Trends Quarterly reports that the weighted average Cap rate for apartments across the country during the 3QT 2012 was 6.2. However, if you look at the different regions you will find a large range from 5.7 in the West to 7.1 in the Midwest. The East shows a Cap rate of 5.8 while the South is at 6.8. Know your Cap Rate.
Another thing to consider is the type of market – Major Metro – Secondary Markets – Tertiary Markets. Because of a perceived higher risk the smaller markets currently have a higher Cap rate with the Tertiary markets at just over 7% and the Secondary markets at 6.5 percent. The Major Metro markets are one percent lower at 5.5 percent. Is now the time to consider some of the smaller market areas? The weak single family home market has provided a good strong rental market. The vacancy rate for apartments across the country is currently 4.6 percent and rental rates increased .8% in September and .9% in October. The low vacancy rate will continue for some time because of the low volume of new units being built. Lenders are still reluctant to provide construction financing and it will probably stay that way until interest rates increase. Is now the time to invest in multifamily? Location – Timing – Demographics. The Timing seems to be favorable with vacancy rates low and rental rates increasing every month. However, you can’t ignore the basic. Location and the demographics of that location still need to be analyzed with care.