Apartment investing in 2025: the numbers behind the narrative

Multifamily apartment building — evaluating apartment investments in US urban markets

Multifamily real estate sits at an inflection point. After a brutal reset that wiped roughly 20% off property values between mid-2022 and early 2024, transaction volume has rebounded for two consecutive years—reaching $165.5 billion in 2025, surpassing the 15-year annual average of $155 billion. The recovery is uneven: Midwest and Northeast markets are posting rent growth above 3%, while Sun Belt metros that absorbed record supply are still nursing negative rents. For investors, the divergence creates both a trap and an opportunity. Understanding where demographic tailwinds meet underwriting discipline is now the entire game.

A market that nearly froze is thawing unevenly

The scale of the 2023 downturn deserves context. Multifamily transaction volume cratered to $119 billion—down 61% from peak levels—the slowest pace since 2013. Investment activity clawed back to $131 billion in 2024 (up 9%) and then $165.5 billion in 2025 (up another 9.4%), according to MSCI Real Capital Analytics and Arbor Realty data. But that 2025 figure still trails the 2021 peak by roughly a quarter. Average price per unit climbed from $194,000 in Q1 2024 to $221,532 by Q4—a 10.4% recovery within the year.

Cap rates tell a parallel story of stabilization. National apartment cap rates plateaued at roughly 5.7% through 2024 and 2025 (MSCI), remaining the tightest of any major property type. Beneath the headline, however, CBRE's underwriting survey captured meaningful compression in core assets: going-in cap rates for institutional core product fell to 4.75% by mid-2025, while value-add deals traded at 5.20%—a spread of just 45 basis points. Class B properties nationally averaged 6.27% (IRR Viewpoint 2025), and secondary-market Class C assets stretched to 7% or above.

The supply picture is critical. In 2024, the US delivered a staggering 600,000+ market-rate apartment units—the highest annual total in roughly four decades. That supply wave crushed rent growth nationally to just 0.3–1.0% for the year (depending on the source: CBRE, RealPage, Fannie Mae). But the pipeline is shrinking fast: construction starts in 2024 fell 50% from their 2022 peak, and annual deliveries are projected to drop to roughly 300,000 units by 2027. The markets that endured the most pain—Austin, Phoenix, Charlotte—are precisely those where supply will tighten most dramatically, setting the stage for a rent recovery cycle that disciplined value-add investors can exploit.

Occupancy has already begun reflecting this shift. RealPage tracked national occupancy rising from a recent low of 94.1% in early 2024 to 95.4% by Q3 2025, roughly in line with the healthy 2010s norm. Vacancy improved in 68 of CBRE's 69 tracked markets by Q2 2025.

45.3 million renter households and counting

The structural demand story for apartments has never been stronger, anchored by demographics that no interest rate cycle can unwind. The US reached a record 45.3 million renter households in 2024, growing 1.9%—the fastest pace since 2015 outside the pandemic. Renter household growth accounted for more than half of all US household growth that year.

Three interlocking forces drive this:

• The affordability chasm. Monthly mortgage payments are now 91% higher than average apartment asking rents, up from just 18% higher in 2010, according to RealPage. Freddie Mac calculates that a typical renter of a single-family home would pay $600 more per month to purchase the equivalent property. Only one in five consumers believes it's a good time to buy (Fannie Mae), and renters' self-assessed probability of purchasing has fallen to 34%—an all-time low in the New York Fed's series dating to 2015.

• Generational delay. The median age of first-time homebuyers has drifted to 38 years old (NAR), up from 33 just three years earlier. Gen Z now represents 25% of all US renters (Zillow) and is the only generation currently adding net rental households. Meanwhile, only 47% of millennials own homes at the individual level (Apartment List), compared with 55% of baby boomers at comparable ages. The Urban Institute projects the homeownership rate will fall to 62% by 2040, with renter growth outpacing homeowner growth by more than two-to-one over the next 15 years.

• Immigration-fueled demand. From 2022 to 2024, immigration added an estimated 500,000 new households per year—nearly double the normal rate—creating an extra 700,000 households above baseline projections over the three-year period, per John Burns Research & Consulting. Harvard's Joint Center for Housing Studies found that foreign-born householders accounted for 25% of household growth between 2019 and 2023. A low-immigration scenario would reduce projected housing demand by 1.7 million households over the next decade.

Migration patterns continue to favor Sun Belt metros—14 of the 15 top metros for net domestic in-migration sit in the South or Southeast. Florida gained 810,000 residents between 2020 and 2024. But oversupply in many of these same markets has temporarily dampened rent growth, creating an unusual window where demographic momentum and investor caution coexist. Over the next decade, Moody's Analytics projects Sun Belt population growth of 11 million (+7%) versus just 475,000 (+0.3%) for all other regions combined.

Value-add math in a higher-rate world

The classic apartment value-add playbook—acquire a Class B or C property, renovate units, push rents, stabilize, and sell—remains viable but requires sharper pencils. Current renovation economics break down roughly as follows:

A light cosmetic refresh (paint, vinyl plank flooring, fixtures, hardware) runs $3,500–$7,500 per unit and typically yields rent premiums of $50–$150 per month. A standard value-add renovation (new kitchens, countertops, bathrooms, appliances, flooring) costs $10,000–$20,000 per unit and generates $150–$300 per month in additional rent—translating to a 24–35% annual return on renovation capital. A heavy gut renovation exceeding $20,000 per unit can push premiums above $300 monthly but carries execution and vacancy risk.

Smart home technology has emerged as a surprisingly efficient lever. A basic package—smart lock, thermostat, leak sensor—costs just $300–$500 per unit to install. Properties with smart features command an average 5% rent premium (NMHC/Kingsley Associates) and lease 20% faster (NAA). Smart thermostats alone reduce HVAC costs by 10–15%, while leak sensors cut water damage expenses by 70–90%. Some 65% of renters now say they'd pay extra for smart home features, with average willingness of $25–$100 per month (Rently 2025 survey).

The yield differential between core and value-add strategies, while compressed, still rewards active management. CBRE's Q3 2025 data shows core multifamily generating an unlevered IRR of 7.64% versus 10.01% for value-add—a 237 basis point spread. Typical value-add target IRRs remain in the 12–17% range at the fund level, with standard hold periods of 3–7 years.

The underwriting gauntlet: benchmarks that matter

Disciplined underwriting in the current environment requires navigating a specific set of constraints that differ meaningfully from the 2021 vintage. Current lending rates range from 5.42% (HUD/FHA) through 5.44–5.95% (Fannie Mae) to 6.20–6.45% (CMBS) and 7–10% for bridge financing (Apartment Loan Store, February 2026). With going-in cap rates of 4.75–5.70%, negative leverage remains a reality for many core acquisitions—meaning borrowing costs exceed initial property yields, and investors must underwrite to meaningful rent growth to generate returns.

Agency lenders enforce minimum debt service coverage ratios of 1.20x–1.25x (Fannie Mae and Freddie Mac), while HUD's 221(d)(4) program offers the lowest hurdle at 1.18x for market-rate properties. Maximum loan-to-value ratios sit at 80% for agency loans and 80–85% for HUD, with bridge lenders typically capping at 70–80%. Operating expense ratios for well-managed institutional apartments cluster at 35–45% of gross income, though insurance cost inflation has pushed that range higher: multifamily insurance premiums have risen 129% since 2018 to an average of $636 per unit annually, now representing 17% of total expense growth despite being only 7–8% of operating budgets.

Break-even occupancy—the point at which rental income covers all expenses and debt service—averages roughly 88% for apartment properties, with lenders generally requiring 85% or below to approve financing. In the current environment, investors are underwriting rent growth of approximately 2.4% annually for the first three years (CBRE Q3 2025), with national occupancy assumptions in the 94–95% range.

The refinancing risk embedded in the system remains substantial. Nearly $957 billion in commercial real estate loans matured in 2025 alone, with multifamily accounting for $310 billion (32% of the total). Borrowers who locked rates at 3–4% in 2021–2022 now face refinancing at rates nearly double their original terms. CMBS multifamily delinquency rates reached 6.59% by September 2025, and total distressed commercial real estate volume hit $126.6 billion in Q3 2025, with multifamily comprising $22.8 billion. The Fed's easing—cutting to a 3.50–3.75% target range by late 2025 after 175 basis points of total cuts—provides partial relief but hasn't fully closed the gap.

Four forces reshaping the next cycle

AI is rewriting property operations. PropTech investment surged 67.9% in 2025 to $16.7 billion, with AI-centered deals growing at an annualized 42%. EliseAI, now valued at $2.2 billion after a $250 million Series E, manages communications and leasing workflows across 5 million+ apartment units for owners including Greystar, AvalonBay, and Equity Residential. JLL's 2024 survey found 90% of companies plan to manage CRE functions with AI. The efficiency gains are tangible: automated leasing, predictive maintenance, and dynamic pricing are compressing operating costs at a moment when expense ratios are under pressure.

Build-to-rent is no longer a niche. BTR deliveries soared to 39,000 single-family homes in 2024—a 455% increase from 2019. BTR now accounts for 9.0% of all single-family starts, with over 110,000 units under construction nationally. Texas leads with 21,800 homes in development, followed by Arizona and Florida with nearly 14,000 each. Institutional capital from Progress Residential (85,000 homes), Invitation Homes (80,000), and American Homes 4 Rent (60,000) is professionalizing the sector. For traditional apartment investors, BTR represents both a competitive threat and a signal of where suburban rental demand is migrating.

ESG upgrades carry financial logic beyond ideology. LEED-certified buildings command rents of $2.91 per square foot versus $2.16 for conventional buildings, and average sales prices run 21.4% higher per Cushman & Wakefield data. Freddie Mac's Green Advantage Program reports $28 million in annual savings across its portfolio. With local building performance standards proliferating in major cities, non-compliant assets face growing "stranded asset" risk.

Sun Belt oversupply is temporary but severe. Austin's apartment vacancy topped 14% in 2024— more than double its 2021 level—with rents falling for 10 consecutive quarters and declining 7.4% year-over-year. Phoenix, Denver, Charlotte, and Atlanta all posted negative rent growth. Yet Austin's 2025 pipeline is projected to drop 68% from 2024 levels, and nationally, deliveries are expected to fall to roughly 300,000 units by 2027— the lowest level in a decade. The supply correction is happening; the question is which operators can underwrite through the trough and capitalize on the recovery.

Conclusion: discipline over narrative

The apartment investment thesis remains intact—45.3 million renter households, a homeownership affordability crisis with no near-term resolution, and a supply pipeline that is self-correcting after a historic glut. But the margin for error has narrowed. Cap rate spreads over Treasuries sit at 120–170 basis points (well below the 300-basis-point historical average), negative leverage persists for many acquisitions, and insurance and operating costs continue to inflate expense ratios. The investors who will outperform this cycle are those who pair demographic conviction with granular market selection—favoring supply-constrained Midwest and Northeast metros or Sun Belt markets where the worst deliveries have already passed— and who deploy value-add capital at renovation returns of 25%+ annually while maintaining break-even occupancy below 85%. Technology adoption, particularly AI-driven leasing and operations, is transitioning from competitive advantage to table stakes. The data says the demand is there. Underwriting discipline determines who captures it.

Whether evaluating a build-to-rent portfolio or a traditional multifamily acquisition, a multifamily feasibility study anchors the investment thesis in defensible market data. Our bankable feasibility studies provide the lender-grade analysis required to secure financing in today's elevated-rate environment. For a DSCR-focused underwriting perspective, see our multifamily underwriting stress test, and for development pipeline insights, explore the emerging trends shaping U.S. multifamily development.

Sources:

• MSCI Real Capital Analytics — Multifamily transaction volume ($119B in 2023, $131B in 2024, $165.5B in 2025)

• Arbor Realty Trust — U.S. Multifamily Market Snapshot, February 2026; renter household growth data; BTR starts

• CBRE — Underwriting metrics Q2–Q3 2025; cap rate surveys; record apartment demand; insurance cost analysis

• Freddie Mac — 2025 Multifamily Outlook; rent vs. mortgage affordability gap; Green Advantage Program savings

• Fannie Mae — Multifamily Economic & Market Commentary, January 2025; consumer sentiment on homebuying

• RealPage — Occupancy tracking (94.1% → 95.4%); mortgage vs. rent divide (91% premium)

• National Apartment Association (NAA/NAAHQ) — Apartment Market Pulse (Winter, Summer, Fall 2025); smart home leasing speed data

• IRR Viewpoint 2025 / Yield PRO — Class B cap rate benchmarks (6.27%); cap rate movement tracking

• Apartment List — National rent data; 2025 Millennial Homeownership Report (47% ownership rate)

• National Association of Realtors (NAR) — Median first-time buyer age (38); homebuyer profile data

• Urban Institute — Homeownership rate projections (62% by 2040); household formation forecasting

• Harvard Joint Center for Housing Studies — Immigration impact on housing demand (25% of household growth)

• John Burns Research & Consulting — Immigration household formation estimates (500K/year, 700K above baseline)

• New York Federal Reserve — Consumer Expectations Housing Survey (34% purchase probability)