Learning my market: MFR rents

As I mentioned in my previous post, I've written the first draft of a business plan. I want to buy and hold multi-family properties in about a 5 mile radius from my home in Tacoma. But I suspect that there are not enough MFRs in this area for me to meet my goal of 20+ doors in 5 years. So before I commit to the plan, I want to take a little time to look around and get a sense of what's out there.

In this post I'll take a look at rents. How much do apartments go for around here? What's the average for studio, 1, 2, and 3BD apts? How much does neighborhood matter? How much does square footage?

Source: Craigslist, filtered for duplex and apartments.

I started by looking at apartments even though I don't plan to get into apartment complexes (yet). Looking at apartments simply revealed that rents for units in large complexes are in line with rents in 2-4plexes. Luxury apartments rents far exceed anything listed for any small MFR, but that's not relevant to me since that's not my market.

Then I filtered for duplexes which in CL includes tri- and fourplexes as well.

There were 133 total, but about 60% or so were outside of Tacoma proper. I might be interested in expanding to Lakewood, UP, and Parkland someday, but for starters I'll stick with Tacoma.

I took notes in a Google Doc, although halfway in I realized that I should have started with a spreadsheet so that I could analyze the data more easily. I'll do that later. I looked at each CL listing and broke it down by neighborhood, bed/bath, and square footage. If something was noteworthy (such as being brand new) I included it.

After an informal look at the data, here is what I've found:

The average rent for 1BR is 643.

For 2BR, is 849.

For 3BR is 989. A second bathroom looks to be worth an additional 100 per month.

Looking at only the 2BR (where units were most comparable and there was the most data) and filtering for average rents by neighborhood:

Hilltop 823. -3.1%

Central 882. +3.8%

SW 815. -4.1%

SE 888 +4.6%

I didn't analyze according to square footage because it didn't appear to matter all that much and I don't think I have enough samples yet to be able to do anything meaningful with the information.

And that's the biggest thing to keep in mind looking at this stuff: this is a very small sample size. There are only 28 total units included in this whole breakdown so I'd be wary of putting too much faith in these numbers.

Still, over time as I add more properties to the spreadsheet, the better it becomes.

This will be useful information to have. Central to my strategy of buy and hold is knowing what the average rental rates for a given unit type are. I'll also be interested to see if those variations by neighborhood hold true as I collect more info.

Something to keep in mind is that rent by neighborhood by itself could be misleading. For example let's say that an apartment on Hilltop really does rent for 3% less than something similar elsewhere. I wouldn't necessarily use that as a reason not to buy there, because what if that same property costs 5% less? In which case you may get $26 less in rent per month, but spend $10k less to buy the home in the first place. Even over 30 years, you still come out ahead in that situation.

That's enough for now. There just isn't enough data yet to slice and dice it too finely. Next I'll do something similar for SFR.