Why We're a Net Seller of Multifamily Deals in 2022
I absolutely love investing in multifamily apartments. I've written quite a bit about why this asset class is an excellent way to build cash flow and grow your wealth. Over the last 9 months, we've seen a dramatic uptick in rental rates and for me, it's time to take some off the table.
As of March 2022, year-over-year rent rates for 1-bedroom and 2-bedroom apartments increased an average of 24%. We have definitely seen this in our multifamily portfolio which translates to a 3-year acceleration of our NOI target. In other words, we are hitting NOI targets in 2022, which we didn't expect to hit for another 3-to 4 years. Given the projected higher interest rate climate and a slowing rate of change in GDP, it's a good time to sell.
The truth is, it's always been expensive to buy multifamily deals. Nobody really knows how much further we have to go before we begin to see a season of cap rate expansion. This year we are observing that there are willing buyers at cap rates below the cost of capital. Recent cap rates I've seen are in the 2-2.7% range. In many cases, not all, this is concerning. Some of these deals may make sense if rents haven't been stabilized, but the question we're asking is, "Has the easy money been made?" I don't know, but if it has, it's time to sell and build cash as we wait and watch.
I don't want to sell everything. We have in fact added this year, but I'm feeling good about being a net seller rather than a net buyer like in 2016-2019. There are a lot of concerns from a macroeconomic perspective with the Ukraine war and the impact on the petrodollar, interest rates, and the economy. We have very high rent rates that many people are going to struggle to afford if we see a big slowdown in GDP and sustained inflation.
I am still convinced that multifamily apartments are an excellent asset class and I will stick with it far into the future, but we have some turbulent waters ahead. I think there will be some good opportunities in another year or two as well. I want to have cash for those opportunities.