Investing in apartment buildings has become an increasingly popular strategy for real estate investors in recent years. As demand for rental housing continues to rise across the US, apartments can provide a stable source of income along with long-term capital appreciation. But not all markets are created equal when it comes to apartment investment potential. Choosing the right city is absolutely critical to maximizing returns. When researching the best apartment investment cities, there are several key factors savvy investors consider:
Firstly, you want to look for markets with strong ongoing population and job growth. More people moving to an area means higher demand for all types of housing, pushing up rents and property values over time. Robust job growth ensures there are tenants who can afford market-rate rents. Technology hubs like Austin and Raleigh have been demographic stars lately.
Another crucial criteria is affordability and demand from both renters and buyers. The best apartment investment cities have relatively affordable home prices, allowing investors to achieve higher rental yields. These markets also tend to have undersupplied housing, creating scarcity and intense competition among renters.cities like Phoenix and Las Vegas offer far more attractive rent-to-price ratios than coastal markets.
Healthy cashflow is also essential for profitable apartment investing. You want to identify cities where achievable rents exceed expenses like taxes, insurance, maintenance, and financing payments. Markets like Dallas and Houston enable investors to realize strong monthly cashflow even after all expenses.
Based on population growth, affordability, demand metrics, and cashflow potential, some of the best cities for apartment investment in 2023 include Atlanta, Charlotte, Dallas, Phoenix, Las Vegas, and Orlando. These fast-growing metropolitan areas offer the demographics and fundamentals to generate strong risk-adjusted returns on multifamily properties.
The Southeast is a top region for apartment investment, led by Atlanta and Charlotte
The Southeast has emerged as one of the premier regions for apartment investing, led by major metros like Atlanta and Charlotte. Both cities have experienced massive influxes of residents over the past decade, fueling rising demand for rentals. The Atlanta metro area added over 1.1 million new residents between 2010 and 2020, while Charlotte gained over 300,000. This population boom has pushed occupancy rates to all-time highs in both cities, according to RealPage data. At last measure, Atlanta and Charlotte had occupancy rates around 96%.
Such intense demand from renters has enabled landlords to achieve very strong rent growth as well – among the highest in the nation. Effective rents in Atlanta and Charlotte have climbed 50% and 44% respectively since 2010. This rapid appreciation reflects the strong desire of renters to live in these areas.
The incredible renter demand has made Atlanta and Charlotte extremely profitable apartment investment targets. Investors are able to charge monthly rents that far exceed expenses, even on newer Class A properties. Cap rates in both cities generally fall between 5-6% on deals – very healthy figures. Combine strong cash flow with high, virtually guaranteed occupancy and rapid rent growth, and it’s easy to see why Atlanta and Charlotte rank so highly for apartment investing.
Dallas/Fort Worth offers affordable housing and huge job growth
The Dallas/Fort Worth metro area has quietly emerged as one of the top apartment investment markets in the US, thanks to its booming population, affordable home prices, and plentiful jobs. Between 2010 and 2020, the DFW metro gained over 1.2 million new residents. People have been drawn to the area by employment opportunities, with major corporations like Toyota, Liberty Mutual and JP Morgan Chase building huge regional hubs there. Texas also benefits from a business-friendly tax climate.
The incredibly strong job growth has pushed up demand for apartments. DFW’s occupancy rate currently stands at 95%. Investors are achieving annual rent bumps between 5-10% on renewals as residents compete for limited supply. Much of the product being built is higher-end, allowing owners to maximize rents. Class A property rents average around $1,400/month.
Despite sizzling rent growth, the DFW market remains far more reasonably priced than other major metros like LA or NYC. Investors can acquire properties for around $200,000 per unit. Cash-on-cash returns generally land between 7-9% for well-run assets. Overall, Dallas/Fort Worth represents an ideal blend of tenant demand, rent growth and affordability.
Sunbelt markets like Phoenix and Las Vegas offer hot demand coupled with affordability
Many of the most compelling apartment investment opportunities lie in the Sunbelt, where fast-growing metros combine hot demand with relatively low housing costs. Phoenix and Las Vegas are two premier examples. Phoenix has registered enormous population growth in recent years, averaging over 80,000 new residents annually. Maricopa County alone added over 1 million people from 2010 to 2020. Las Vegas has also attracted streams of new residents with its warm weather, tourist attractions and budding tech scene. Employment opportunities have expanded considerably.
Yet in spite of all the new households, home prices remain reasonably affordable in both metros, especially compared to California. The median home in Phoenix costs around $307,000, while the median list price in Vegas is $369,000. This provides a huge edge to investors. Cap rates on apartment deals often reach 6-8% in both cities, providing ample cash flow. Owners are achieving rental yield premiums of 4-5% in Phoenix and Vegas, more than doubling rates in expensive markets like San Francisco and NYC.
Demand is also intense in both areas, with occupancy around 96-97% metro-wide. Phoenix and Vegas represent textbook Sunbelt cities where the fundamentals are squarely in the multifamily investor’s favor.
Orlando’s booming tourism industry and affordability make it a top target
While less prominent nationally than peers like Miami, Orlando has quietly emerged as one of the hottest apartment investment markets in Florida. As the epicenter of the state’s tourism industry, Orlando benefits tremendously from the nearly 75 million annual visitors to its theme parks. Tourism and hospitality jobs account for 30%+ of the metro’s employment. This leads to incredible occupancy rates for apartments, with current multifamily vacancy at just 2.4% according to RealPage – one of the lowest figures in the nation. Orlando’s multifamily market is essentially always fully occupied.
Apartment investors also benefit tremendously from Orlando’s lack of developer overbuilding. Construction simply hasn’t kept pace with demand growth. This lack of supply allows owners to achieve outsized rent hikes during renewals. Top-tier Class A properties change hands for cap rates in the 4.5-5.5% range – extremely profitable.
While Orlando doesn’t offer quite as stellar affordability as Sunbelt markets like Phoenix and Vegas, housing costs are still reasonable compared to South Florida. 1-bedroom apartments rent for around $1,400 near the city center. Investors receive sufficient cash flow cushion to profit.
Strong market fundamentals are key to successful apartment investing
In order to invest profitably in apartments, conducting meticulous market research is absolutely essential. Experienced investors carefully analyze key metrics like population growth, job growth, home affordability, supply/demand balance, renter household formation, and cash flow potential before deploying capital. Markets that demonstrate strong fundamentals across these areas are most likely to provide favorable risk-adjusted returns over the long run.
By focusing on cities with surging populations, expanding employment opportunities, reasonable housing costs and undersupplied rental markets, investors position themselves to achieve higher rents, lower vacancy, quicker lease-up of new units, and higher occupancy rates. Leveraging data and analytics provides a significant edge.
Of course, optimal apartment investing also requires operational savvy, renovation/repositioning skills, and patient asset management. But choosing an attractive metro with stellar demand drivers is the critical first step to maximizing profits.
In summary, some of the best apartment investment cities based on population growth, affordability, job growth, and cash flow prospects include Atlanta, Charlotte, Dallas, Phoenix, Las Vegas and Orlando. These fast-expanding Sunbelt markets offer investors the demographics and housing dynamics to achieve excellent risk-adjusted returns. However, conducting rigorous market research remains critical to investing successfully.