How to analyze a market

Question

I would like to know how others analyze a new market before investing in it?

Joe Villeneuve · Answer

The spread between what it costs to get in, and what I can take out, and how long it ends up taking me to get all the cost out.

Chris Perrin · Answer

John,

Thank you for the response here. Do you have any suggestions on places to find these metrics? MSA growth, schools and economic diversification?

Isidro Martinez · Answer

Sounds great thanks for the help guys

Jonathan Twombly · Answer

Here's how I do it.

First, and foremost, I want to make sure there is good population growth, at the MSA level and the local level. (MSA is metropolitan statistical area - what the census bureau considers the economic unit of the area).

The state doesn't matter, because some states have poor growth overall, but MSAs within the state are healthy.  You want to make sure that you are investing in a growing area within a growing MSA, because growth within MSAs can also vary.Next, I want to make sure that the market is big enough to have enough liquidity, meaning that there are enough transactions going on that you can buy and sell when you want.  Usually I want the MSA overall to be at least 250,000 in population.

Third, I want to make sure that the area near the property, or the area I am focused on if I don't have a property in mind, is economically diverse.  I don't want to invest where too many people are dependent on a single employer, which could go out of business or leave.  I don't even like it if the single employer is the US government, because it can pull out at any time.

Fourth, I want to make sure that the schools are good.  All things being equal, good schools will attract good tenants, regardless of the class of renter.  Good schools also make your property sticky, in that people don't want to leave if the rental gives them a chance to send their kids to school in an area where they cannot afford to buy a home.Some other things to consider - what I call "anchors."  These are economic drivers that won't go away, regardless of the economic situation.  State capitals, major universities, major health care complexes, logistical hubs like inland ports (though these are subject to economic ups and downs, they are so expensive and time-consuming to build that they are not abandoned and they are hard to compete with in the short-term.)Hope this helps.

How to analyze a market

Most Popular Reply