Menu
When underwriting a deal under such historic rental demand, it is easy to fall into the thinking it will continue this way indefinitely.
For investors who want staying power, it is important to model your expectations to what the historic averages have been. History, as they say is bound to repeat itself.
The rental market is very hot right now, but that does not mean it always will be. Historically, markets have favored the tenant more, so you should underwrite planning for a more balanced market in the future.
The historical averages are:
From a high in 2000 of 65%, the average turnover ratio in US currently is 50.1%
In the 21stCentury, the median rent increases at an annual rate of 4.17%. (Prior to Pandemic)
Over last 20 years: 8.5%
As always- real estate is local, so may sure you understand the local market where your property is, to get a strong handle on what the expectation should be.
For areas that have strong job growth, turnover is actually higher, as labor demands dictate more mobility for apartment renters, as they move to be closer to the new jobs they take. Those high job growth areas can usually support higher rental increases, which may counter act the higher turnover costs.
1 https://www.cbre.us/research-and-reports/US-Multifamily-Research-Brief—Apartment-Turnover-Rate-Continues-to-Fall-July-2019
2 https://ipropertymanagement.com/research/average-rent-by-year
3 Source: U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey, February 2, 2022
Mary Realty was a growing real estate investment group, who was looking for a ‘value add’ deal. In the intensely competitive market of 2021, this was a huge challenge. They were an extremely successful investor group with property flips, land development, new construction and rentals in their portfolio. However, their trajectory of growth was hinged on stepping up to this next level of multi family investment of 20+ units. Their goal was a project that they could add significant value with their experience in investing. Uncovering these types of deals often take a keen eye and careful review.
After an initial discussion with Naomi Brown, CCIM, they realized that diligence and perseverance were key to having success, which absolutely was possible for the determined and educated investor. Naomi spent extensive time searching and underwriting projects, with a potential being identified after comprehensive review. This encompassed a high level location and market review, to ensure long term demand would be in place. Once a solid case for the market was established, an underwriting of rents and future growth was verified; in which Naomi and Mary Realty held discussions with multiple property managers and researched rental rates. Once these were verified, the buyer could proceed forward with action armed with the full knowledge base of current and future prospective that had been prepared by Naomi and team.
After Mary Realty made a solid decision to move forward, Naomi Brown and team successfully negotiated a purchase price $250,000 less than the property asking price. This contract included multiple contingencies protecting the buyer as well, which is difficult to secure in a competitive market.
Fill out the form below to download our free PDF!