It has been a nice run for Self-Directed Real Estate IRA owners focused on the multi-family residential market, but we are starting to see some signs of a slowdown in investment activity.
New data from CBRE and Real Capital Analyst indicate that total multi-family investment activity slipped by 6.9 percent year-over-year, as of the close of Q2 2018. Capitalization rates, defined as the annual net operating income of the property divided by the property value, edged down to 5.5 percent, largely due to a declining investor interest in so-called ‘garden-style’ apartment buildings.
However, the high-rise market continues to attract strong investment activity, with 12.4 billion in sales marking an increase of 12.2 percent on a year-over-year basis.
A disproportionate share of investment dollars is flowing to the already highly-appreciated markets in Los Angeles and New York, with the hot Dallas market coming in third, well behind the other two metros. But that may well leave opportunities in the underserved Southeast, including here in North Carolina, where economic growth, employment prospects and housing demand remain strong, and where rental yields are still attractive to Self-Directed Real Estate IRA investors interested in multi-family housing.
Data from the Apartment Loan Store, a lender that specializes in the multi-family market, indicates that cap rates in and around Charlotte, North Carolina, are in line with national averages, though they vary by type of property:
New Luxury Metro 4.62%
Class A 5.14%
Class B 5.67%
Class C 6.45%
Value-added Acquisitions 6.34%
The average multi-family rent in Charlotte has increased 2 percent over the past year, also according to the Department Loan Store, though the trend has been towards flattening, overall.
Baby boomers who have recently sold their homes have been migrating to the rental market, offsetting Millennials who are increasingly joining the ranks of homeowners.