At Viking Capital, our acquisitions team meticulously combs through extensive data, metrics, and projections to determine the 10 worst states for investing in multifamily properties in 2024. Our findings incorporated various factors including the overall desirability of the location, resident satisfaction, and GDP economy scores. The final metric we evaluated is resident affordability, assessing average monthly income against the cost of living index.
In this article, we break down the top 10 worst places to invest in multifamily real estate and even give a sneak peek at the top 5 places to invest for 2024.
Key Concepts
Cost of Living Index
Before we can provide our list of the least desirable locations to invest in multifamily, it’s essential to grasp a few key concepts. The first concept is the Cost of Living Index. This provides a breakdown of fundamental expenses like food, housing, transportation, and healthcare, and compares them across all states.
The calculation of Cost of Living Indexes begins with establishing a baseline for comparison. In the U.S., this baseline is the average cost of living and is set at 100. States are then evaluated in relation to this baseline. For instance, a state with a Cost of Living Index of 200 is twice as costly as the national average, while residing in a state with an index of 50 would have expenses roughly half of the national average.
Rent Potential
The second key concept is rent potential. Rent potential is comprised of the historical rental patterns observing three key factors. The first is occupancy levels. An occupancy level is a percentage of units in an establishment that are being leased or inhabited and its inverse is the vacancy rate. The second is the average monthly rent. For this metric, the rents are evaluated and averaged statewide. And finally, the percentage of renters is amongst the total population of the state.
Economic Score
This evaluation takes into account various critical factors, including overall economic growth, annual job growth percentages, and the fiscal health of the state. Additionally, scrutinizes the vitality of the housing market, gauging its resilience and performance.
This assessment extends beyond mere economic metrics; it delves into the depth and diversity of each state’s economic landscape.
Top 10 Worst States to Invest in Multifamily: 2024
#10 Iowa
Iowa finds itself in a challenging position in 2024, ranking as the 10th least favorable state for investment. Despite its commendable stance on renter affordability compared to many states, Iowa falls short of providing an enticing environment for investors. With an average monthly rent of only $806, Iowa’s rental rate falls in the bottom half of the U.S. national average.
One of Iowa’s notable achievements is its robust year-over-year rental growth, boasting an increase of 6.81% since 2023. However, this promising statistic is overshadowed by a stark reality: only 23.2% of the state’s population chooses to rent.
With such a limited rental demand, the allure of investing in Iowa’s multifamily market fades. Due to this less-than-appealing number of renters, Iowa struggles to fill occupancy leaving it with a 7.9% vacancy rate, surpassing the national average of 6.6%.
Iowa, too, grapples with having one of the most challenging economies in the nation, marked by an economy score of 141 out of 360 points. This score reflects the state’s struggle, ranking it as the third slowest in terms of economic growth across the country.
Despite affordability, the lack of robust demand coupled with a weak economy dampens the prospects for investors seeking fruitful returns in Iowa.
#9 New Mexico
Claiming the 9th position is New Mexico, a state presenting challenges for multifamily real estate investors. 30.8% of the state’s population are renters with an average monthly rent as low as $857, however with a 7.6% average vacancy rate they fall in the bottom third of the entire country.
New Mexico’s slow population growth, which stands at only 0.04%, is a major concern for potential investors. The state’s entire economic landscape is troubled with slow growth ranking 38th in the nation. Job growth in 2023, was disappointing as well sitting at 3.7% below the national average.
These important economic indicators are underperforming, making New Mexico an uncertain market for investors seeking a stable multifamily investment location.
#8 Kentucky
Taking the 8th spot on our list of the worst places to invest in multifamily real estate for 2024 is Kentucky. Like many contenders on our top 10 list, Kentucky boasts remarkably low average monthly rents, standing at $783 per month for a one-bedroom apartment, placing it among the top three for affordability. However, beneath this seemingly favorable surface lies a concerning trend that spells trouble for prospective investors.
The real issue for investors eyeing Kentucky lies in the declining trajectory of its rental market. With a disheartening rent growth rate of -1.57%, the prospects for profitably navigating this landscape grow increasingly dim. In the midwest, we have seen some of the most favorable rent growth due to inflation yet Kentucky isn’t one of those states demonstrating a positive rent growth pattern. Additionally, the state’s meager population growth of just 0.32% in 2023 serves as another red flag, indicating a lack of momentum in the market’s favor.
Without robust economic drivers to stimulate growth, Kentucky fails to offer a compelling case for new multifamily investments seeking stability and profitability. The absence of a positive outlook for rent growth coupled with sluggish population expansion casts a somber outlook for investors considering ventures in the Bluegrass State.
#7 Ohio
Joining the top 10 list at position 7 on our list of worst states to invest in multifamily properties for 2024 is Ohio. However, Ohio’s ranking here is driven by distinct factors compared to states occupying spots 8 through 10. While Ohio positions itself in the middle of the pack across various metrics, it faces challenges primarily in rent and population growth dynamics.
Ohio presents a relatively affordable housing market with a robust job sector, attracting one-third of its populace to opt for renting. However, the state falters in rent and population growth metrics. With an average monthly rent of a modest $825 and a vacancy rate of 5.8%, Ohio struggles to spur significant rent growth, placing it in the bottom decile of U.S. rankings. This stagnant market makes it challenging for investors to project a growth trajectory.
Furthermore, Ohio’s housing market presents hurdles, with median single-family home prices hitting the lowest mark in the U.S. at $240,900, alongside an excess of 15,199 homes available for purchase. Additionally, the state witnesses minimal economic expansion, evidenced by a meager 0.2% population growth from 2023 to 2024.
In summary, while Ohio offers stability and affordability in certain aspects, its stagnant rent and population growth pose significant challenges for investors, warranting careful consideration before venturing into its multifamily market.
# 6 Maine
Ranked as the 6th worst place to invest in multifamily real estate for 2024, Maine’s allure lies in its complex dynamics. On the surface, its rental market appears promising with a commendable vacancy rate of merely 2.9%. Yet, a deeper look reveals a conundrum: while the state boasts a low vacancy rate, only 23.8% of its population are renters, stifling both inventory growth and rental demand.
The crux of Maine’s rental dilemma lies in its demographic landscape. The U.S. Census Bureau paints a striking picture: by 2030, over 31% of Maine’s populace will be aged 60 and above—a staggering 41% increase from 2012. This aging trend is not merely demographic but economic, as Maine stands as the 12th least affordable state to reside in according to the Cost of Living Index. With statistics showing the average rental age from 18-34, this state is at a true disadvantage.
Compounding this challenge is Maine’s sluggish population growth, ranking among the lowest in the nation. Over the decade from 2018 to 2028, projections foresee a meager 2.1% increase in population—a stark contrast to the bustling growth seen elsewhere.
For investors eyeing Maine’s real estate landscape, these statistics paint a cautionary tale. While the state holds pockets of potential, navigating its unique blend of demographics, affordability challenges, and sluggish growth is not for the faint of heart.
#5 South Carolina
Marking the halfway point in our top 10 list, at number 5, is South Carolina. This state stands apart from many others due to its unique economic landscape. Where many others struggle with job and population growth, South Carolina is hindered by its rent potential. However, despite this divergence, it presents significant hurdles for those eyeing multifamily investment opportunities.
South Carolina grapples with pronounced viability issues when it comes to underwriting multifamily investment deals, primarily stemming from its limited rent potential. With the highest vacancy rates in the nation, averaging 12.4%, nearly double the national average, the state’s rental market paints a challenging picture for investors. This high vacancy rate, coupled with subdued rental demand, creates a formidable environment for prospective investments.
Adding to the complexity is the state’s relatively modest population of renters, comprising only 23.4% of its total populace, despite an average monthly rent of $918.
Further insights from U.S. News and World Report, shed light on South Carolina’s economic landscape, ranking it 41st in the nation. This middling position is influenced by factors such as low median household income, elevated crime rates, and limited opportunities, making it a tricky terrain for lucrative investment prospects.
Navigating South Carolina’s multifamily real estate market demands careful consideration of these challenges and a strategic approach to maximize investment potential in this dynamic but demanding environment.
#4 Louisiana
Joining South Carolina in facing a host of economic challenges, Louisiana earns the distinction of being the 4th worst state to invest in for 2024. Despite ranking among the top 15 states for affordability, Louisiana grapples with one of the lowest median household incomes, securing the 49th spot out of the 50 U.S. states. The Louisiana economy falls as the 6th worst in the nation with an economy score of 120 out of 360 points, representing one of the slowest growing economies in the U.S.
When evaluating Louisiana’s rent potential, considering average monthly rent, occupancy rate, and the percentage of renters, this state places 47th, when averaging these three key statistics. While rental costs and the number of renters align more closely to the national average, Louisiana boasts a notably high vacancy rate, at 10.1% prompting investors to exercise caution when considering this market.
# 3 Mississippi
Securing the 3rd spot as one of the least desirable locations for investment in 2024 is Mississippi. Despite claiming the number one rank in the country for affordability on the Cost of Living Index, the state faces significant challenges in terms of median household income, landing at the bottom of the list. While these factors may correlate, they don’t bode well for multifamily investment desirability.
This sentiment is reflected in Mississippi’s average monthly rents, which stand at a modest $789, placing it among the top three states with the cheapest average rents. Notably, while the state maintains average occupancy rates, it lacks strong rental demand, with less than a third of the population opting to rent. This trend is unlikely to shift, given Mississippi’s marginal population growth of just 0.03% and a mere 1.5% increase in the job market. Mississippi is ranked the fourth worst economy in the nation, with a score of 103 out of 360 points. These economic challenges are poised to hinder market growth in the foreseeable future.
However, amidst these hurdles, Mississippi boasts a significant positive: substantial rent growth at 13.93%, the second highest in the U.S. This notable uptick in rent growth presents a glimmer of hope amidst the economic challenges faced by the state’s multifamily market.
#2 Arkansas
Landing in the top 2 is Arkansas. With relentless economic challenges, this state is not ideal for prospective multifamily real estate investors. With persistent economic hurdles, this state emerges as a less-than-ideal choice for investment. Arkansas boasts the second-lowest median household income in the U.S., standing at a mere $50,540, coupled with a poverty rate of 14.7%, ranking as the fourth-highest nationwide, showcasing the depth of its socioeconomic challenges.
Compounding these issues, Arkansas demonstrates a low educational attainment level, with just 24.9% of residents holding a bachelor’s degree or higher. These indicators underscore why Arkansas holds the dubious distinction of having the lowest median monthly rent price in the nation, ranking dead last at 50th place. With an average rent of $760 and an alarming 11.9% vacancy rate,-the second-worst occupancy rate in the nation. the state’s multifamily market faces significant hurdles.
The state’s multifamily market faces significant hurdles, further deterring investor interest. Given these discouraging metrics, Arkansas presents significant risks for investors and warrants careful consideration before venturing into its multifamily market.
#1 West Virginia
Taking the top spot, is a northeastern state, West Virginia. In exploring the essence of a robust multifamily real estate market, it becomes evident that traditional economic catalysts play a pivotal role. Unfortunately, West Virginia falls short on several fronts despite its renter-friendly pricing.
Topping the list of concerns is the state’s dismal ranking of 50th for household median income, stagnating at an average of $52,460. This financial backdrop casts a shadow over the prospects for multifamily investments, as economic stability is fundamental for sustained growth. The economic scorecard for this state reveals 99/360 points. One of the largest concerns for West Virginia is its anemic job growth with a meager 0.4% increase of a total of 1,400 jobs last year and a staggering population decline of -0.22%. Such figures highlight how fragile the state’s economy is. These metrics alone should discourage new ventures from multifamily investors seeking promising returns.
The number of renters in West Virginia bolsters the insufficiencies of the rental landscape. This stark metric is only 22.2% of residents opting to rent. This relatively low proportion further diminishes the demand for multifamily properties, exacerbating the investment outlook and potential risk.
For those considering West Virginia as a potential investment destination, these statistics serve as a sobering reminder of the state’s economic realities.
Top 5 States to Invest in Multifamily Real Estate: 2024
Having revealed the 10 worst states for real estate investment, let’s shift focus to a more promising outlook with a list of the top 5 potential real estate markets. In these states, all five exhibit impressive rent potential, are propelled by robust economic drivers, and maintain a favorable cost of living ratio to household income. Utilizing the same data and metrics, we have identified these states as your top 5 contenders:
- Georgia
- Minnesota
- Texas
- Arizona
- New Hampshire
