Multifamily investors - What area do you buy at and what rent increases do you underwrite? (if any)
Just interested in seeing how other investors are viewing rent increases going forward.
We're mainly buying in DFW and projecting 0% growth for the next year, 1% growth for the two years after that, and 2% yearly growth after that.
Based on the WSO Dataset, multifamily investors' strategies and expectations for rent increases can vary significantly depending on the region and market conditions. While your approach in the DFW area, with conservative projections of 0% growth for the next year, followed by 1% growth for the next two years, and 2% yearly growth thereafter, reflects a cautious outlook, other investors might have different expectations based on their market analysis and investment philosophy.
For instance, in markets with strong job growth, limited housing supply, or significant population increases, investors might project higher rent growth rates. Conversely, in areas with stagnant economic indicators or where new construction is likely to outpace demand, more conservative growth rates might be anticipated.
It's also worth noting that investment strategies can differ. Some investors might focus on value-add opportunities where they can force appreciation through property improvements and subsequently increase rents at a higher rate than the market average. Others might invest in stabilized properties in prime locations, expecting steady, modest rent increases driven by the overall market demand.
In regions like the NY metro area, as mentioned in the context, investors might consider buying rent-stabilized deals, anticipating that cap rates could tick up with interest rates, affecting their rent increase projections and overall investment strategy.
Ultimately, the approach to projecting rent increases is highly individual and depends on a multitude of factors, including market dynamics, property location, investment strategy, and the investor's risk tolerance. It's crucial to conduct thorough market research and consider all variables before finalizing rent growth projections in your investment model.
Sources: Value add - multifamily ... RENTS, TAXES, WTF??, Lunch & Learn -Ins and Outs of Multifamily, A Discussion on Interest Rates/Macro Fundamentals (Long OP), Who is buying this stuff? Brokers and PE analyst/associates, "Pre-Stabilized" Investments - Multifamily
We’re underwriting increase on renovated units, and then assuming that we will be able to loss to lease on some of these renewals (or we would then renovate them). Not assuming organic rent growth beyond the mark to market
Do you assume that 0% rent growth throughout the life of the investment?
We’re not underwriting rent increases beyond rolling legacy rents on classic units to recent leasing levels and renovated units to renovated market rent. Since this is already assuming some decent rent growth, we’re not layering an additional growth factor on top of that
In my experience, multifamily buyers are absolute pussies. Who assumes 0% rent growth throughout the construction and lease up process.
5.5% cap rates on acquisitions? Go sell bonds, you dork.
Glad I'm out of that rat race.
Explain
Multifamily buyers as a whole do not have the required intestinal fortitude to invest in real estate
You sound triggered. What happened with your MF experience?
Reading that back, I'm pretty sure I was drunk
But buyers are still cowards
Given that lease-ups in most markets are seeing 0% or negative rent growth (put concessions aside), it seems like a reasonable assumption to make.
People are pussies about pushing rents too. One coward backslides and then it sets off a chain reaction.
lol im dying bro. totally with you. I can get behind no growth for the next year maybe two if you wanna be super conservative but beyond that you're either 1) buying absolute dogshit properties 2) investing in horrendous market cyclical markets or 3) you sit down when you pee.
Midwest tertiary markets – rent growth is usually at 2-3% annually assuming non-renovated. Renovated units go for whatever market is. I am a small "mom and pop" landlord.
Do you use this assumptions today too? 3% vs 0-1% rent growth often times is what makes the deal pencil/not pencil.
My target markets are all the major markets in the Southeast in Midwest. Southeast - now underwriting 1-2% rent growth and then typically 3.75% in year two and 3.25%-3% from there. Midwest - typically 3.5% in year one and 3% thereafter.
If you're underwriting 0% at this point and 1% for the next two years good luck ever doing a deal. As the supply pipelines start to wane growth will pick back up as demand will begin to outpace supply again - unless everything melts down and the for-sale housing market collapses flooding the country with inventory. Otherwise, you'll have two generations in the renter market that are renter-by-necessity.
This guy gets it. Supply drop-off this year is wild. Once we get past the last of the deliveries things will start getting funny again for a period of time.
Large west coast market with a major lack of supply coming to market in the coming years: zero rent growth duh
Agreed. Year 1 rent growth should be highly correlated to economic vacancy. To blindly say 0% across the board year 1 shows lack of operating experience.
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