How Much Does Market Selection Matter in Multifamily Investing?

Question

One thing I keep hearing from experienced investors is that buying the “right deal” is important, but buying in the right market might matter even more long term.

Curious what others think:

When evaluating a multifamily opportunity, how much weight are you putting on:
• population growth
• job growth
• landlord friendliness
• taxes/insurance
• local rent demand
• affordability
• long-term appreciation potential

versus just focusing on the numbers of the deal itself?

Would be interested hearing how different investors balance market quality vs deal quality in today’s environment.

J Castro · Answer

From a lender’s perspective, market selection matters just as much as the deal itself — sometimes more.

A strong operator can improve operations, reduce expenses, and execute a business plan, but they can’t change the market fundamentals around the property.

When we evaluate multifamily deals, we’re looking at both:

• the quality of the asset/business planAND• the long-term strength of the market

The deals that tend to perform best over time are usually in markets with:
• steady population growth
• diversified job growth
• strong rental demand
• landlord-friendly environments
• reasonable taxes and insurance costs
• affordability relative to local incomes

In today’s environment especially, taxes and insurance have become huge underwriting factors. A property with strong cash flow on paper can quickly become a problem if expenses keep rising faster than rents.

That said, market quality alone doesn’t save a bad deal. We’ve seen investors overpay in “hot” markets assuming appreciation will bail them out later. The numbers still have to work day one.

Personally, I’d rather finance:• a solid deal in a good marketthan• a great-looking deal in a declining or unstable market

The best multifamily investors seem to balance both — disciplined acquisitions in markets with long-term economic durability.

Michael Swan · Answer

100% agree!! The team is more important than the market. I have 10 apartment complexes in NE Ohio, primarily Lake County, Ohio and nobody ever said it was a sexy area that all the gurus talk about. Although it has been very sexy for me!!!!! I love talking shop!! Feel free to reach out to me!! If you change the way you look at things the things you look at change right before your eyes!!!

Swanny (Michael Swan) OG BP Podcast 238 Guest

Brad Sicoli · Answer

First, I think that the team matters more than the market.  A great manager can make a bad deal good and a bad manager can make a good deal bad.

Those other factors that you mention are just noise and I think markets are generally efficient.  In other words, the price and market rents are reflected in the price already.  Not that you should ignore them, I just think the team is more important than the economic conditions.  I also think the fundamentals or as you call it "focusing on the numbers" is more important than those economic factors that you list.

Also, I think you're missing a very important economic factor on your list: supply.  I put more weight into new units coming on than I do population growth.  If population growth is 0%, nominal wages increase at 3%, and there is 0 new supply added or lost, then I would expect rents to increase by 3%.  In other words, population and job growth alone is only half the picture, that's the demand of rentals.  Austin had high population and job growth but now it's crashing because it was overbuilt.  I believe the supply factors are more important than the demand factors.

Stacy Raskin · Answer

From what I hear from investors, they usually want some kind of cash flow, a market that has rental demand and tenants that have job opportunities and will be able to pay their rent. Also, local housing laws as far as how tenant or landlord friendly the laws are can make a big difference in their investment.

Greg Scott · Answer

Based on the criteria you listed, Austin TX was one of the very best market to invest in 5 years ago.  Ask people how that went.

Nick Sansivero · Answer

@Dalton Mongold the old saying “Location, Location, Location” exists for a reason. Obviously you should buy the right deal but only in a market you’d be comfortable holding through a cycle. Personally I always start by analyzing and comparing cities/counties/ZIPs as a whole (with Tenantry.ai) to make sure they’re likely to appreciate before ever running numbers on individual deals. Even if I found a property that looks like a cash cow I wouldn’t touch it if I didn’t think the area was ripe for appreciation

Vijay Friedman · Answer

@Dalton MongoldI’d weigh both, but market quality becomes more important the longer the hold period is. A strong deal in a weak market can work short-term, but for multifamily, rent demand, job growth, taxes/insurance, and landlord-friendliness can affect the refinance or DSCR exit later.

For me, the deal numbers should still work on day one, but the market helps determine whether the exit strategy is actually realistic.

G. Brian Davis · Answer

Depends on the goals of the deal, buy we spend a lot of time looking at both the market and the operator plus the projected returns. We pay close attention to population and job growth, landlord friendliness, affordability, and whether rent demand is truly sustainable.

Denise Supplee · Answer

I've always felt that both matter. A great market can't fix a bad deal, and a great deal can become challenging if the market fundamentals aren't there.

Over the years as a Realtor, property manager, and investor, I've learned to pay close attention to factors like job growth, population trends, rental demand, and affordability. Those things can have a significant impact on a property's long-term performance. I still want the deal itself to make sense. Strong market fundamentals may create opportunities, but the numbers must also align.

How Much Does Market Selection Matter in Multifamily Investing?

Most Popular Reply