Rising Rent Rates and Declining Vacancies Make Multifamily an Attractive Investment
3/28/2012 3:18 PM
Submitted by S. Laraby
In recent history, multifamily investments have not looked as attractive as they do right now. In Q4, 2011, vacancy rates have dropped for the 5th quarter in a row while rent levels have increased the last 8 quarters. Low vacancies and higher rent levels create the perfect storm for some investors who own thousands of multifamily units.
Consider an investor who owns 1,000 units that reflect national averages from Q4 2009 - Q4 2011. The rising rent level coupled with the falling vacancy rate would have the following outcome:
Starting Rent Level: 990
Starting Vacancy Rate: 8.3%, or 917 occupied units
Starting Gross Revenue: $907,830/month, $10,893,960/yr
Ending Rent Level: 1050
Ending Vacancy Rate: 6.25%, or 938 occupied units
Ending Gross Revenue: $984, 900/month, $11,818,800/yr
All other variables being held constant, the market conditions have increased gross revenue by nearly 8.5% over two years for an average multifamily owner.
Estimated National Rent Level and Vacancy Rate
Source: Fannie Mae Multifamily Economics
The growth of the sector was fueled by increasing demand with concurrent diminishing supply, therefore increasing rent rates and decreasing availability. This pattern is expected to continue for the remainder of 2012 as strong demand for apartment homes is expected to continue throughout the country.