How to choose the a market?
Santa Clara, CA · Member since 2019 · 16 posts · 6 votes
How to choose the a market?
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Multifamily investor · Boston, MA · Member since 2017 · 281 posts · 521 votes
7yThis is what I look for when deciding which markets to invest in:
- Population growth – A solid market is one that has population growth. Markets that have flat or negative population growth can indicate a problem, while markets that continuously have people moving into them is a sign that there will be more demand for apartments. One of the markets with the highest population growth is Dallas, TX, while the Providence, RI market has shown no significant population growth at all. Where to find information? Simply google it! For example, search “Jacksonville population” and you’ll see the trend. Focus on the last 5-10 years.
- Job Growth – Population usually follows jobs, and a great market is one that adds many new jobs each year. I usually look for markets with an unemployment rate that is lower than the national average (4.1%). In addition to evaluating the city job growth, you need to pay attention to any major industry or employer that may be responsible for more than 25% of the market, because if the dominant industry or employer is in trouble so is your property (due to layoffs). A solid market is one that has steady job growth and a diverse economy. Where to find information? www.city-data.com and www.census.gov.
- Rent Growth – A strong multifamily market is a market that has increasing rents. If rents are in a downward trend, then your property might suffer from declining rents as well. This is also a rule of thumb, and each investment is unique, but general speaking I try to stay away from markets that have a declining rent trend. Where to find information? www.census.gov has information on the average rent in the past several years in major cities.
- Appreciation Potential – The lion share of the profits is made when you sell the property. This is why appreciation is key. I look at markets that have strong appreciation potential, and if property values are increasing, it is more likely that I’d be able to sell my investment at a significantly higher price than when I bought it. This is why I believe that you make money when you sell a property, not when you buy it. A word of caution, though: real estate is a cyclical business, and even markets with strong appreciation can suffer when the economy turns. A market with increasing prices is not a guarantee that you’ll make profit when you exit, but it’s a safer market to be in when you buy. Where to find information? Many large brokerage firms offer free reports that show rents and real estate prices. You can find the reports from reputable companies such as CBRE, Marcus and Millichap, Yardi Metrix, etc.
- Landlord Friendly State – Landlord-friendly markets have a direct impact on real estate and the return of the investments. Some states, such as California, are very tenant-friendly, which means that it can take up to 9 and even 11 months to evict an unpaying tenant while, in the meantime, you pay for the mortgage and the expenses. Other states, such as Texas and Florida, are landlord-friendly and provide owners with a quick eviction process. Where to find information? Simply Google: “How long does it take to evict an unpaying tenant in …”
35 Replies
- Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes7y
Originally posted by @John Casmon:
@William Orrock in that case, focus more on a good area with GREAT property management. More than likely you will be buying a 1-4 unit and the reality is unless you have scale your property won't be a priority for most PMs. Find a firm that specializes in working with out of market investors.
If you're focused on cash flow vs. appreciation, there are great options for you in the Midwest. In particular Cleveland, Chicago and Detroit are areas where I can suggest a couple of firms that specialize in what you're seeking. There are certainly better markets for appreciation potential, but your PM will make or break your investment.Yes absolutely correct about PM being key
Also important to understand where to buy and product.... War zones will always turn to crapola
- 7yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Alex Shin:
@Chris Clothier
Hi Chris do you use a data source besides bls.gov for job growth?
Thanks
Alex
I prefer bestplaces.net as my data aggregation source because I find they have the most up-to-date data and they update it often. Their data points also are extensive enough that I can dig into different metrics quickly and organize the ones I want to measure across markets.
I have always researched the .gov sites for data, but I like Bestplaces.net as an aggregation site to get everything in one spot. Lastly, when you find a market that looks like it has good data, research the business climate in that market. Read local bloggers. If they have a business journal, read it. Research the chamber of commerce. A lot of what you read are going to be rosy colored puff pieces, but you are looking for the business climate itself. Are the stories matching what the aggregate sites say? You're just trying to get a feel for the vitality of the city and the likelihood that it grows in the next market cycle.
- 7yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@William Orrock The first thing you need to do is more clearly define what your investment goals are. It's not enough to say that you are looking for both equity and cash flow. Those can be mutually exclusive in some markets, so you need to define your primary objective. Only when you've done that can you start researching the markets that will best meet your objectives. If your goal is cash flow, you should focus on the Midwest and Southeast. Personally, I like Indianapolis and Kansas City. Both have strong economic and demographic factors combined with good cash flow. We've been active in both for nearly 10 years. You asked if turn key is a good start for a newbie and I would say for the out of state investor that doesn't have much experience and can't devote a lot of time to it, it is often the only practical way to go without a lot of risk.
- Member since 2018 · 76 posts · 23 votes7y
Hi. I am also from Cal. Are the neighboring states, Oregon, Nevada, Arizona a more suitable place to invest in for cash flow? I hear a lot of good things about Arizona, any suggestion on what part of the city and town to invest in?
- Member since 2018 · 76 posts · 23 votes7y
Hi. I am also from Cal. Are the neighboring states, Oregon, Nevada, Arizona a more suitable place to invest in for cash flow? I hear a lot of good things about Arizona, any suggestion on what part of the city and town to invest in?
- Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes7y
Hello @William Orrock !
I've seen hundreds of investors come to OKC. Many of them from CA with similar pain points.
OKC great price points when compared to what you're probably looking at in CA. 60-120K in decent neighborhoods. Everything I've seen go is cash flowing and meeting the 1% rule, unless it's in an A class area.. your 1% might drop.
Also we're incredibly landlord friendly. For instance, you can do an eviction in under 30 days for under $500!
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