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Thanks to high yields and favorable tax conditions, Washington, D.C. and Las Vegas lead the nation for multifamily investment.
A new report from commercial listings platform LoopNet analyzed 50 major U.S. cities, scoring them on investing metrics, including cap rates, property taxes and listing inventory, which accounted for 76 percent of the score. The remaining share was based on lifestyle factors such as access to parks and award-winning restaurants.
Nationwide, demand for multifamily properties has remained healthy as affordability concerns weigh on homebuyers. Multifamily starts have propelled residential construction so far this year.
The nation’s capital took the top spot, thanks to a 7.04 percent average cap rate and a property tax rate of just 0.58 percent — the seventh-lowest of the cohort. The city also benefits from strong lifestyle factors. Nearly all, 99 percent, of the city’s residents live within a 10-minute walk of a park; the city also has the highest density of James Beard Award-winning and -nominated restaurants of the markets on the ranking. Finally, Washington, D.C. also has the sixth-highest amount of multifamily listings per 10,000 residents of the markets studied.
Las Vegas followed, with a 7.07 average percent cap rate and the fifth-lowest property-tax rate of 0.5 percent. The Nevada gambling hub led the index in property size, ranking first for average square footage per property at nearly 79,000 square feet and third for unit counts, averaging roughly 60 units per building.
Denver, Miami and Richmond, Virginia, rounded out the top five. Denver stood out for its second-lowest property tax rate on the index of 0.44 percent. Meanwhile, Miami has the highest volume of multifamily listings per 10,000 residents across the studied markets. As for Richmond, the market offers strong yield for investors, with a cap rate of 7.25 percent. Its parks are also larger, with a median size of 4.7 acres.
For investors looking for pure yield, Detroit posted the highest average cap rate of the studied cities, of 11.42 percent. That was almost double or triple the rates in several premier coastal markets: San Diego (4.52 percent); Los Angeles (5.64 percent); and New York (6.5 percent).
On the tax front, investors in El Paso, Texas (23rd on the ranking) fared best, with a rate of 0.41 percent. The highest rate was in Colorado Springs, Colorado (46th on the ranking), with a rate of 2.09 percent.
Meanwhile, investors seeking the highest-quality assets should look in the South and Midwest. More than a quarter of Raleigh, North Carolina’s multifamily property listings are Class A buildings. Nashville and Omaha had the second- and third-largest shares of high-end listings.