The multifamily real estate market is evolving, and 2025 is shaping up to be another critical year for investors. Whether you’re a seasoned multifamily investor or considering your first purchase, understanding the trends and key market factors can help you make informed decisions. In this deep dive, Juan Huizar and Cody Charnell share their insights on pricing, interest rates, inventory, and the best strategies for maximizing value in the coming year.
Multifamily Pricing Trends: What to Expect in 2025
Multifamily pricing trends are largely dependent on the unit size and overall market conditions. The two primary segments—2-4 unit properties and 5+ unit buildings—are experiencing different dynamics.
5+ Unit Properties: Over the last couple of years, larger multifamily buildings (5 units and up) have been hit hardest due to rising interest rates and increased down payment requirements. In many cases, buyers need to put down 40% to make deals pencil out. This has kept many buyers on the sidelines, leading to a continued buyer’s market in this segment. As a result, sellers are having to be more realistic with pricing if they want to move their properties.
2-4 Unit Properties: The smaller multifamily segment has seen less of a price drop because it benefits from long-term, 30-year fixed financing. Investors in this market tend to be less sensitive to cap rates and more focused on long-term appreciation and rental income. As a result, pricing for these properties has remained steadier compared to the larger multifamily market.
Overall, the market is showing signs of stabilization, with some sensitivity in pricing for 5+ unit properties, while the 2-4 unit market is likely to remain stable.
Interest Rates and Their Impact on Multifamily Investing
Interest rates continue to be a major factor in real estate investing. Currently, for non-owner-occupied 2-4 unit properties, rates are hovering in the high 6% to low 7% range. For 5+ unit properties, rates are slightly lower, in the high 6% range.
Many investors expected rates to decrease in 2024, but that hasn’t materialized. Looking ahead to 2025, interest rates will likely play a crucial role in pricing trends. If rates decline, we may see an uptick in pricing as affordability improves. However, even at current rates, smart investors are moving forward with purchases, knowing they can refinance later if rates drop.
A key takeaway from successful investors is that they focus on making money on the purchase rather than waiting for interest rates to decline. By negotiating a strong deal upfront, investors can lock in a great price, with the option to refinance in the future.
Rising Insurance Costs: A New Challenge for Investors
One of the biggest hurdles facing multifamily investors today is insurance costs. Over the last several years, many insurance carriers have left the California market due to increasing claims and regulatory challenges. The recent fires in Los Angeles have exacerbated this issue, making it even more difficult to secure affordable coverage.
When purchasing or refinancing a multifamily property, insurance providers now require updated building systems, including:
- Roof
- Plumbing
- Electrical Panels & Wiring
- HVAC Systems
If a building hasn’t had these major systems updated in the last 30 years, securing an insurance policy at a reasonable rate can be challenging. As a result, buyers are negotiating harder on deals where major upgrades are needed.
At our firm, we’ve adapted by making insurance a top priority from day one. In the past, investors could wait until closing to secure insurance, but now it’s essential to start shopping for coverage immediately when a property goes under contract.
Inventory Forecast: Why Supply is Increasing in 2025
Supply and demand play a significant role in pricing and investment opportunities. Looking ahead, we expect multifamily inventory to continue increasing in 2025.
Why? Several factors are contributing to more properties hitting the market:
- Loan Adjustments: Many owners refinanced in 2021 when interest rates were at historic lows. Many of those loans were fixed for 3-5 years, meaning they will adjust in 2025. Some property owners will face significant payment increases and may choose to sell instead of absorbing higher costs.
- Rising Ownership Costs: Between skyrocketing insurance rates and new regulations, many longtime landlords are feeling squeezed. Some small independent landlords—especially those in cities with restrictive rent control policies—are choosing to exit the market.
- Legislative Challenges: California continues to pass laws that make it more difficult for landlords to increase rents, evict problem tenants, or manage properties efficiently. Some owners are fed up and deciding it’s time to sell.
For investors, an increase in inventory creates opportunities. As more properties become available, buyers will have greater negotiating power and more chances to secure a great deal.
Value-Add Strategies for Multifamily Investors
Despite challenges, multifamily real estate remains a strong long-term investment. Savvy investors are finding ways to increase property value and cash flow.
1. ADU Development (Accessory Dwelling Units)
California’s new ADU laws make it easier than ever to add units to existing multifamily properties. SB 1211, which went into effect in 2024, allows investors to double the number of units on a lot up to eight units. Additionally, garage conversions are another great way to add rental income.
2. Mid-Term Rentals & Airbnb
While short-term rental regulations are tightening in some cities, mid-term rentals (furnished units leased for 30+ days) remain a strong strategy. Many investors are using a hybrid model—keeping most units as long-term rentals while designating 25% for mid-term or short-term use where permitted.
3. Operational Improvements
Many investors assume raising rents is the only way to increase income, but there are other creative strategies, such as:
• Adding paid parking options
• Installing on-site laundry machines
• Offering storage units or bike lockers
By optimizing income streams, investors can improve cash flow without relying solely on rent increases.
Final Thoughts: Advice for Buyers & Sellers in 2025
If you’re a multifamily property owner, now is the time to take stock of your portfolio. Assess your insurance situation, check the condition of your building systems, and determine whether holding or selling makes sense based on your financial goals.
If you’re a buyer, opportunities are emerging as inventory increases and pricing remains lower than peak levels. The best strategy is to buy now, secure a great deal, and refinance later when rates decline. Waiting for the “perfect moment” could mean missing out on great investment opportunities.
