If you're an investor, you know how well real estate performed in 2020/2021 due to the Federal Government's response to the covid-19 pandemic. The Fed distributed cash to many Americans which increased spending power. Interest rates dropped significantly, and banks were flooded with cash giving them reason to lend. Historically low interest rates paved the way for real estate to shine. Debt was inexpensive and borrowers took advantage. Real estate was in high demand forcing cap rates to compress! There were plenty of deals out there, however competition was fierce making it tough for investors to secure contracts without overpaying.
As the economy became saturated with cash, rental rates increased and investors experienced significant upside in NOI (Net Operating Income). On average, rental rates increase between 3-5% annually, however many of the "sunbelt states" experienced rental increases greater than 15% annually! While increases like this create great returns for investors, this "spike" in rental growth, there is concern that this is not sustainable. Because of the Fed's aggressive and subsequent interest rate hikes over the past 12 months, rent growth in most markets has slowed this year; some markets being greatly affected over others.
Researchers at Apartmentlist.com state,
"At the metro level, Las Vegas and Phoenix have both seen prices fall by 4.2 percent over the past year (only the New Orleans metro has seen a larger year-over-year decline at -5.3 percent). And in addition to those two metros, multiple other previously booming Sun Belt markets have now seen their year-over-year growth rates turn negative...At the other end of the spectrum, the fastest metro-level rent growth over the past year has been occurring in the Midwest."
Read full report HERE.
While we did see higher than average levels of rate growth, Midwest states didn't experience major increases. Conversely, we're also not seeing the dips and even negative rent growth as in other major metros. Factors such as these make it imperative to understand our investment markets and how they have historically performed through market shifts.
VCP focuses on the acquisition of multifamily real estate in stable, growth-oriented markets, and we believe the Midwest offers opportunities with consistent cash flow and lower risk profiles.