The multifamily housing sector has emerged as a powerhouse in the U.S. real estate market, surpassing the office market. In 2021, the “value of multifamily lending reached over 487 billion dollars”, making it an attractive investment opportunity for both individual and institutional investors.** Three key factors in thoroughly assessing the investment potential of multifamily properties are location dynamics, demographic trends, and potential income.
Location Dynamics
The old adage, “The three most important things in real estate are ‘Location, location, location,’” was first used in a Chicago Tribune advertisement in 1926.** Although it has been used for nearly 100 years, the statement remains true. No matter how beautiful a property is or how many desirable amenities it offers, it won’t attract renters if it’s not in a sought-after location. The dynamics of a location impact market stability, demand, and rental rates, making them crucial in determining the success of a multifamily property investment.
In 2023, the Dallas-Fort Worth (DFW) Metroplex was the fastest-growing region in the United States, according to the U.S. Census. With a population exceeding 8 million, DFW gained over 150,000 new residents in the past year.**
Source: U.S. Census Bureau, Vintage 2023 Population Estimates.
While Fort Worth led the metroplex in population growth, adding 20,000 new residents, the population boom extended beyond Dallas and Fort Worth, into the surrounding suburbs. According to the North Central Texas Council of Governments, smaller cities within the metro area, such as Celina, Frisco, Arlington, and Mansfield, also experienced significant growth, rounding out the top five cities with the highest increases in residents over the past year.**
Job creation, business expansions, and economic opportunities often lead to an influx of new residents. The metropolitan area “makes up only 2% of the population of the US. But 4.5% of all new US jobs created from August 2022-23 were located in the DFW metroplex,” according to the US Bureau of Labor.** Dallas-Fort Worth has a diversified economy with strong sectors in technology, healthcare, finance, and manufacturing, attracting a workforce seeking employment and stable income sources. This economic vitality supports higher occupancy rates and rental income stability for multifamily properties.
To accommodate this growth, Dallas-Fort Worth led the nation in new multifamily construction in 2023. As these projects are completed, there may be a temporary dip in occupancy rates and increased rental competition due to this new supply. However, this is likely to be short-lived. With continued population growth and a slowdown in new construction applications, the impact of a continued shortage of multifamily housing is likely by 2025 and 2026.
The growth in DFW has had a significant impact on infrastructure development. With increasing population growth, both local governments and private developers are channeling investments into improving
transportation networks, schools, healthcare facilities, and recreational amenities. This enhanced infrastructure not only makes the area more appealing to potential renters but also stimulates demand for housing. Additionally, DFW population growth continues to influence cultural and social dynamics. As new residents bring diverse backgrounds and lifestyles, the DFW metroplex has evolved into a vibrant, dynamic community. This cultural richness, in addition to the diverse array of museums, parks, stadiums, and arenas, contributes to making Dallas-Fort Worth one of the most popular locations in the country.
Demographic Trend
Analyzing demographic trends is imperative in making an investment decision. High demand for rental properties indicates a robust tenant base, leading to the potential for higher occupancy rates, stable rental income, and increased potential resale value of the property.
The wider adoption of remote work, housing availability, quality of life, and employment opportunities have all fueled population growth in many rapidly expanding Sun Belt markets. With its strong economic growth, burgeoning population, and business-attracting policies, Dallas has seen extraordinary growth. It leads the U.S. in job creation and ranks in the top 10 for household growth.***
Income stability and growth appear promising due to the diverse range of employment opportunities, the migration of businesses, and the recent influx of migrants to the metroplex. The average household income in Dallas stands at $102,023, while in Fort Worth, it’s slightly lower at $97,226. The diverse employment opportunities driving DFW’s growth, including positions in science, mathematics, technology, corporate management, and finance, are attracting newcomers. These individuals often have higher incomes, advanced education, and stable employment. This trend leads to a more diversified workforce, as highlighted by Laila Assanie, a senior business economist at the Federal Reserve Bank of Dallas.** [THESE TWO PARAGRAPHS DON’T REALLY DISCUSS DEMOGRAPHIC TRENDS – WHICH I THINK OF AS AGE, INCOME, EDUCATION, ETC.]
An additional demographic trend in the U.S. that further solidifies the stability of multifamily investments is the move toward renting over buying. This trend can be seen in Dallas-Fort Worth as two distinct age groups vie for multifamily properties. Young adults born between 1998 and 2012, Gen Z, make up 25% of the U.S. population and are now entering the rental market. The second group is the Baby Boomers. By 2030, 25% of the population will be 65 or older, increasing demand for low-maintenance senior living as many choose to downsize from home ownership. **
These groups are having an impact on the rental market. Understanding tenant needs and preferences, such as desired amenities (e.g., gyms, pools, common areas) and pet policies, can enhance tenant satisfaction and retention.
While evaluating tenant profiles helps investors identify promising markets and understand renter preferences and demographics, rigorous screening processes of tenant quality may help to reduce the risk of non-payment or property damage and enhance the potential for stable rental income.
Assessing Income Potential in Multifamily Investments
Potential income is an important factor in calculating success for multifamily investments. It will serve as a metric for determining the financial potential and investment validity of a multifamily property or group of properties. Income from a multifamily real estate property can stem from various sources, contributing to a diverse revenue stream that enhances its appeal to investors. These income sources may include rental income, parking fees, amenity fees, upgrades, and utility bundles. In addition to these traditional income streams, investors often employ value-add strategies to further enhance income potential and property value.
These strategies may include renovating and upgrading units and common areas, introducing new amenities, optimizing utilities, implementing revenue management techniques, and fostering community engagement. By strategically implementing these initiatives, investors can position multifamily properties as attractive investment opportunities, maximizing income potential and enhancing market positioning for sale.
Essential analysis of multifamily properties must include determining the revenue that can be generated. This revenue will be compared to operating costs to calculate the property’s net operating income (NOI).
SOURCES
**Statista, “American multifamily homes – statistics & facts” Accessed December 2023 https://www.statista.com/topics/5396/multifamily-homes-in-the-us/#topicOverview
**New York Times, “Location, Location, Location” William Safire, 2009 https://www.nytimes.com/2009/06/28/magazine/28FOB-onlanguage-t.html ***CBRE, 2024 U.S. Investor Intentions Survey, 2024, https://www.cbre.com/insights/briefs/2024-us-investor-intentions-survey
Access May 28, 2024 ***Marcus & Millichap, 2024 U.S. Multifamily Investment Forecast, https://www.marcusmillichap.com/research/market-report/multiple-markets/2024-us-multifamily-investment-forecast Access May 28, 2024
**NBCDFW, “Dallas Fort Worth leads all metro areas” Accessed March 2024 https://www.nbcdfw.com/*news/local/dallas-fort-worth-leads-all-metro-areas-in-population-growth
**Fort Worth Report “Where is North Texas Growth Happening?” Accessed May 2023 https://fortworthreport.org/2023/05/29/where-in-north-texas-is-growth-happening
**NBCDFW, “Dallas Fort Worth leads all metro areas” Accessed March 2024 https://www.nbcdfw.com/news/local/dallas-fort-worth-leads-all-metro-areas-in-population-growth
**Dallas Chamber, “Major Companies and Headquarters” Accessed March 2023 https://www.dallaschamber.org/wp-content/uploads/2022/03/EDG2022_BusinessEcon-MajorCosAndHQs.pdf
**World Population Review, “Dallas and Fort Worth Statistics” Accessed 2024 https://worldpopulationreview.com/us-cities
**Governing, “Census Shows a Wealthier, More Educated North Texas Workforce” Accessed January 2023 https://www.governing.com/work/census-shows-a-wealthier-more-educated-north-texas-workforce
** United States Census Bureau – “Populations projections from 2020 to 2060” Accessed February 2020 https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1144.pdf
**Real Page Analytics Blog, “Rental Statistics Dallas Fort Worth” Accessed 2023 https://www.realpage.com/analytics/tags/dallas-fort-worth/
** Washington Post Real Estate, “How GenZ is shaping Apartment Living” Accessed March 2022 https://www.washingtonpost.com/business/2022/03/28/how-gen-z-is-shaping-future-apartment-living/
