The 10 Criteria We Use to Find Hidden Value in the Nation’s Top Affordable Housing Markets
At Ocean Ridge Capital, our mission goes beyond investing; we strive to elevate the standard of affordable multifamily housing while delivering consistent, resilient returns to our investors. Finding hidden value in overlooked markets allows us to transform underperforming properties into thriving communities, ensuring a positive impact for residents and reliable returns for our partners. Our success relies on a data-driven approach to market selection, focusing on key indicators that reveal untapped potential. Here are the ten criteria we use to find hidden value in the nation’s top affordable housing markets.
1. Population Growth
We focus on markets experiencing population growth rates significantly above the national average of 0.6%. For example, cities like Huntsville, Alabama; Lexington, Kentucky; and Des Moines, Iowa, have experienced consistent population increases due to job opportunities and quality of life improvements. These areas show that growth is not limited to major metros, and strong demand for affordable housing supports stable occupancy rates.
2. Job Creation and Economic Diversity
Job creation is a critical driver of housing demand. In cities like Huntsville, which is benefiting from a growing tech and aerospace sector, and Indianapolis, Indiana, with its burgeoning life sciences and logistics industries, job growth consistently outpaces national averages. We prioritize markets with diverse economic bases that provide stability and resilience, reducing exposure to downturns in any single industry.
3. Affordability Index
Affordability remains at the core of our market selection process. Markets like Louisville, Kentucky, and Kansas City, Missouri, maintain housing affordability indexes that appeal to renters and prospective homeowners alike. With housing costs relative to income remaining manageable, these cities avoid the affordability crunch seen in many coastal and major Sunbelt cities, making them attractive for investors looking to capitalize on consistent demand.
4. Pro-Business and Landlord-Friendly Policies
Navigating regulatory landscapes is crucial. We prioritize markets in states like Texas, Indiana, and Florida, known for their business-friendly climates, landlord-favorable regulations, and tax incentives that encourage real estate investment. These environments protect property owners' rights and support long-term economic growth, enhancing the appeal of multifamily investments.
5. High Rental Demand and Low Vacancy Rates
Markets with low vacancy rates, such as Columbus, Ohio, and Fort Worth, Texas, demonstrate strong demand for rental housing. For instance, Columbus boasts a vacancy rate of just 3.8%, driven by a growing student population and a dynamic tech sector. High occupancy rates in these areas lead to predictable cash flow, making them ideal for stable multifamily investments.
6. Market Resilience to Economic Downturns
We seek markets that have shown resilience in past economic downturns. For example, Omaha, Nebraska, and Oklahoma City have historically weathered recessions better due to diverse economic drivers like healthcare, education, and energy. Markets that demonstrate resilience help protect investor capital and maintain consistent demand for rental housing.
7. Future Growth Indicators
We look for leading indicators of future growth, such as planned infrastructure projects, corporate relocations, or major employer expansions. Greenville, South Carolina, for example, has seen significant investments in its downtown area and expanding job market, setting the stage for continued economic growth and increasing housing demand.
8. Quality of Life Factors
Quality of life is a critical factor for long-term growth. Cities like Raleigh, North Carolina, and Boise, Idaho, rank highly for livability, with excellent schools, low crime rates, and abundant recreational opportunities. High quality of life attracts residents who are likely to stay long-term, bolstering the stability of the rental market.
9. Entry Price Point and Cap Rate Potential
We target markets where acquisition costs are reasonable, and cap rates are above national averages. Cities like Tulsa, Oklahoma, and Memphis, Tennessee, offer entry cap rates ranging from 6-7%+, providing investors with higher returns compared to the more expensive coastal markets. These favorable entry points enable us to acquire and improve properties at attractive prices.
10. Value-Add Potential
We specifically look for properties that offer significant value-add potential. In markets like Chattanooga, Tennessee, and Little Rock, Arkansas, underperforming multifamily assets with outdated amenities or management inefficiencies present opportunities for enhancement. Strategic renovations and operational improvements unlock hidden value, boosting NOI and overall property performance.
At Ocean Ridge Capital, our approach to finding hidden value is rooted in these ten criteria. We believe that strategic market selection, combined with our commitment to elevating affordable housing, sets us apart. By focusing on factors like population growth, economic resilience, and affordability, we identify markets that are often overlooked but offer tremendous potential for investors. This methodical approach allows us to transform underappreciated properties into high-performing assets that benefit both investors and the communities they serve. Through data-driven insights and a mission-driven focus, Ocean Ridge Capital is redefining the landscape of affordable multifamily housing, one market at a time.