Why Do You Invest In That Market?
A question I hear all the time is,
“How do you decide which markets to invest in?”
This is interesting to me because I often want to know what an investor evaluates when she is investing in her own local community. What kind of research is done? Is it the comfort of closeness and “knowing” an area that makes a local market seem like a more sound decision for an investment property? Is it an awareness of appreciation trends?
Regardless, when I was learning to invest out of state in remote markets, I learned about several resources that provide quality market data. Sifting through the information can seem overwhelming at first, but knowing what to look for in a market when you are purchasing your first investment can lead you to information that will reveal a snapshot of where a market is and where it is going.
Specifically, factors like population growth, public and private sector jobs, growing job economy and crime affect an area’s viability for a stable investment property.
Think about it this way, when businesses grow, the population grows, which makes vacancy go down, demand for properties goes up, therefore increasing rents and profitability. Lower vacancy will reduce your turnover costs, which are usually your highest costs, and higher rents increase gross revenue. Sounds like a win-win.
Listed below are a few of my tried and true resources that I have used to find valuable information as I am determining the strength of a market:
Integra Realty Resources (IRR) is an independent commercial real estate valuation and consulting firm. According to their website, their focus is on, “real estate appraisals, feasibility, and market studies”.
You can search IRR to find market data on any large market in the U.S. While their focus is on commercial properties, the information is still applicable and shows market trends that apply to evaluating other investing opportunities, like single family residences.
On their Research page, you can select any large market and the type of property you are interested in and a thorough and easy to read infographic like this comes up:
Image by Integra Realty Resources via irr.comWant to anticipate where people are moving and why? Bert Sperling’s Best Places provides plenty of tools to do just that. On his website, you can place cities side by side and compare everything from cost of living, schools, crime rates, and even the commonality of natural disasters.
I find this tool to be especially helpful if I am considering a couple of areas to invest in. The tools give unbiased data which is helpful because I don’t want to make my decisions off of a feeling or warm and fuzzies about a certain area. Don’t get emotional about real estate, right?
Property Management Insider and Real Page provide data analytics to the real estate industry. According to their website, clients use their platform to “improve operating performance and increase capital returns”. Yes, please.
Here is the thing, when I am investing out of state and I am trusting a property manager (PM) to take care of all of the needs of my investment, I want to be an informed consumer. Being an informed consumer equips me to ask the right questions when I am interviewing a PM so that once they are taking care of my property, I can sleep at night. Sleep is good, and so is knowing that my investment hasn’t been converted into a boarded-up-meth-gang-burned-down-squatter-house.
Another question I hear a lot is,
“What kind of questions to you ask when you are interviewing a property manager?”
We could write an entire blog post on that question, but I think a good start is going to this website, reading some of the reports and forming some questions based off of the findings.
So you have done your research, but what kind of resources are helpful if you are local?
Say you looked at all the data online, interviewed all the local experts and put together a team to care for your investment property. Now you are going to infiltrate your future investment community like an undercover anthropologist for a couple months, just to make sure it’s a sound decision. If you have the luxury of time to do this or you happen to be driving distance to the area, I would highly recommend using these resources.
Go to the meetings, meet the people, volunteer, make the phone call and be the curious new community member. It is okay if it’s awkward (but it doesn’t have to be). Check out:
- Economic development board
- The Mayor’s office
- Planning Department
- Chamber of Commerce
- police station
- City Council
People love to talk about what they do, so find the people who are making decisions about what is happening in your market! This is also something you can do by phone. I have emailed and called city officials, there is a lot of relationship building you can do by the way of phone, email and Zoom.
What are some other resources you like to use when you are evaluating a market?
Sources:
Comments