The Effects of Property, Owner, Location, and Tenant Characteristics on Multifamily Profitability

Abstract

A key to promoting and expanding rental housing opportunities for low- and moderate-income families is an ample flow of debt and equity capital to the multifamily market. Market complexities and data obstacles have largely prevented researchers from understanding this market. This article uses the Property Owners and Managers Survey to examine the effects of property, owner, location, and tenant characteristics on various measures of multifamily profitability.A few results stand out from the empirical analysis. Smaller properties have lower rent-to-value and net operating income–to–value ratios and are less likely to be profitable than are other similar properties. A significant majority of properties compete with nonsubsidized properties, and those that compete with subsidized properties are less likely to be profitable. Tenant characteristics have a mixed effect on property performance. The presence of mostly low-income tenants has either a negative or insignificant effect on profitability; but the presence of Section 8 tenants has a positive effect on relative profitability. An important area for future work is to examine the effect of various property and tenant characteristics on mortgage performance.