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Real estate investment trends are the focus of new data studies, one highlighting the multifamily market and the other looking at opportunities in the single-family rental (SFR) property market.
The first quarter numbers from Freddie Mac’s Apartment Investment Market Index (AIMI) found values in 13 major metro markets tracked for the report experienced a slight increase in values to 107.4, up from 107 in the fourth quarter of last year. Although the year-over-year AIMI trending down, with 12 out of the 13 metro areas not enjoying positive growth–Freddie Mac remained confidence that the multifamily market is a solid vehicle for investors.
“The stability in national AIMI values underscores the essential strength of the multifamily market for potential investors,” said Steve Guggenmos, vice president of Freddie Mac Multifamily Research and Modeling. “Property price and net operating income growth continue to outperform their historical averages in the majority of metros. What's more, despite relatively high multifamily construction, the overall strength in the labor market and underlying demographic trends are creating robust demand for new multifamily units.”
Separately, the online residential real estate investment management firm HomeUnion released a list of what it considers to be the best and worst markets for returns on SFR properties, based on an analysis of first-year cap rates in each market.
Cleveland topped HomeUnion’s list, with an 11.1 percent cap rate. The other top markets and their respective cap rates included Columbia, S.C. (9.7 percent), Birmingham, Ala. (8.5 percent), Pittsburgh (8.4 percent) and Milwaukee (8.4 percent). The lowest-yielding markets to invest in SFRs, according to HomeUnion, were all in California: San Francisco (with a 2.5 percent cap rate), San Jose (2.6 percent), Orange County (2.7 percent), Los Angeles (3.1 percent) and San Diego and Oakland (both at 3.5 percent).
“Through midyear, owners of SFR investment properties benefited from healthy returns in many markets nationwide, but especially in markets located in the Midwest and Southeast,” says Steve Hovland, director of research services at HomeUnion. “SFRs are outperforming many other investment vehicles, including bonds and gold. As interest rates remain low after the June Brexit vote placed downward pressure on U.S. treasuries, bonds and other investments will continue to be low yielding assets. Investment real estate has proven to be a successful part of a diversified portfolio, and these markets offer the largest returns.”