Using Rent Curves to Study Multifamily Rental Rates
This is Jonathan Aceves with Meybohm Commercial Real Estate, advising business leaders and helping them make wise real estate decisions. Today we’re going to be discussing Multifamily Rent Curves.
How does one set out to study multifamily rental rates? We do this by building a rent curve. Let’s say you want to study the rental rates for housing in Martinez, GA. We would do a survey of rental rates at apartment complexes in the area, and plot them on a graph. The graph would start out looking like this:
Then we would separate them by class. Class is a ranking system given to multifamily properties by investors, generally A, B, C, and D. A properties are generally newer, amenitized, and really nice. B properties are usually good, but maybe a little older, maybe not the same level of amenities. C properties are in not-so-great areas, in fair condition, usually schools aren’t so good. D properties are in bad condition and really rough areas, these are the kind that you wouldn’t go to at night. Once you’ve broken them apart by class, you draw a curve over them. You would end up with something like this:
It is interesting to note the steepness of the curve, and the distance between the different curves. Another thing to note is that market changes shift the curves. This is what we see in rapidly gentrifying areas—the entire curve moves out.
So how do you use the rent curve? Well this helps investors identify opportunities for repositioning. It also helps you identify management problems. If I see a complex with below-market rents, I try to figure out why. Is it a problem that an investor can fix?
Thanks for reading! Please like and share with those you think might benefit from this. We’d love to hear from you! What are your thoughts about rental rates?