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Short Summary
Main recommendation: Be cautious buying multifamily property right now, because prices are expected to decline, and focus on markets with strong fundamentals for future opportunity, especially those with a good balance of demand and limited supply. The speaker splits his picks into three risky markets to avoid (Austin, Texas; Punta Gorda, Florida; and Santa Fe, New Mexico), three all-around solid markets (Panama City, Florida; Lynchburg, Virginia; and Columbus, Ohio), and three cash-flow markets (Cedar Rapids, Iowa; Cleveland, Ohio; and McAllen, Texas).
Key Points
- The three markets to avoid share the same pattern: strong demand but heavy new construction, rising vacancy, and low cap rates that could push prices down about 20 percent or more.
- Austin has about 44,000 units under construction, a 4.36 percent cap rate, rent growth flattening, and vacancy near 10 percent and forecast to reach 12 percent.
- Punta Gorda's inventory is expected to nearly double in two years, with vacancy forecast to rise from about 12 percent to 25 percent, according to CoStar.
- Panama City, Lynchburg, and Columbus are described as holding up better because demand is outpacing supply or construction is reasonable, with rent growth and vacancy forecast to fall in Panama City and Lynchburg, and stable in Columbus.
- The cash-flow picks trade some appreciation for better yield, so the speaker suggests they are less dependent on future price gains.
Details Worth Noting
- Concrete instructions: The speaker does not give step-by-step buying instructions, but his actionable guidance is to stay away from the three risky markets (Austin, Punta Gorda, Santa Fe) until prices come down, to watch Columbus closely for long-term growth, and to favor cash-flow markets like Cedar Rapids, Cleveland, and McAllen if you want to reduce reliance on appreciation.
- Cap rates are the price-to-income measure he uses: low cap rates mean high prices, and rising cap rates tend to push prices down, so he treats rising cap rates in already-low markets as a warning sign.
- Publicly traded multifamily REITs are down around 15 to 20 percent, which he calls a leading indicator for private valuations.
- Columbus has the lowest overall return of the three all-around picks at 12.5 percent but the best cash flow of the three at about 6 percent, and its growth is tied to a chip manufacturing plant, though he notes the market may already be pricing this in.
- He stresses that these six markets are not a recommendation to buy at current rates, and that the picks are for when prices correct.
Bottom Line
Multifamily prices may fall in the coming months, so the opportunity in the markets he names likely comes after a correction rather than at today's prices, and the choice between appreciation-driven and cash-flow-driven markets depends on your goals.
