help on identifying the best areas to buy real-estate investment?

Question

Hello! I am new to real estate as well as biggerpockets.com. I am hoping for some advice/ direction on ways to identify the best areas in the country for buying to rent or buying to rehab/ sell. Is there an efficient way to identify high growth cities and the most appealing zip codes within those cities? I am hopeful for a model to follow or help with any tools/ services that could be valuable on this one. I appreciate any help! Thank you.

Yonah Weiss · Answer

@Andrew Brecher google Neal Bawa. He has tons of videos and content about how to select markets. Also check out @John Casmon' podcast Target Market Insights, he has gone through many methods as well, and guests have gone into great depth on many different markets.

John Casmon · Answer

@Yonah Weiss thanks for the tag

@Andrew Brecher I've done extensive research and talked to over 100 investors on how to find the best places to invest. There is no magic shortcut, especilaly without more specific details on your investment criteria. However, with a little work, you can find the best markets and submarkets. A couple highlights from all of those conversations:

- Determine if you are focusing on single-family and small multifamily (2-4) units, or commercial multifamily (5+ units)

- Population and job growth are important for both segments. You want to be in a place where people and jobs are going. You can use the US Census, Bureau of Labor for data or simply Google top growth markets or cities with the most new jobs.

- For single-family and small multifamily, you want to see home prices increasing in the metro,

- In addition, look for submarkets that are in the path of progress, I strongly prefer areas where there is a key attraction/hub on both sides. As an example, I love the Bronzeville neighborhood in Chicago because you have University of Chicago to the South and the Loop/Downtown to the north. The Loop is seeing explosive growth and people will naturally migrate out for value. The college will bring in a continuous pipeline of young renters seeking the excitement of downtown nightlife, without the downtown rents.

- Pay attention to inventory/supply and time on market if you plan to flip properties

- For multifamily, look for submarkets that are seeing rent growth and appeal to a strong renter demographic, strong schools, nightlife, low crime, etc. Typically amenities like nightlife and great schools don't go together, so decide which is most important to you

- New developments will give you a clue on where the growth is headed. Almost every city has an economic council that looks to lure new business. Find the one for the area and see what projects are approved, and what incentives they have in place to attract business development.

Simond Wong · Answer

this is really good resources, thank you

Art Perkitny · Answer

@Andrew Brecher

To expand on @John Casmon point I have listed a number of datasets that I've found in my research, which will provide you with a number of key performance indicators (KPIs) that you can use to evaluate real estate markets at all levels.

Census Bureau: American Community Survey (ACS)

The ACS was launched in 2005 and is administered every year by the Census Bureau to roughly three and a half million households in the USA. This dataset contains over 18,000 data points, which are tabulated at the state, MSA, county, city, zip, and block level.

This survey contains hundreds of KPIs that investors should use when searching for new markets to invest into. Here is a list of a few that I find to be of most value:

• Population Total
• Home Values
• Household Incomes
• Poverty Rate
• Population Age
• Rental Vacancy Rate*
• Homeowner Vacancy Rate*
• Educational Attainment Rate (High School/GED & Bachelors)
• Number of Housing Unit
• Rent to Income Ratio*
• Rent to Price Ratio*
• Population on SNAPS (supplemental nutrition assistance program) percentage
• Property Tax Rate*
• Median Age of Buildings
• Number of Structures by Units (SFR, Duplex, Triplex, Quadplex, etc...)
• Median Rents by Number of Bedrooms
• Population Change (Births, Deaths, In-Migrations, Immigrants)

*note that some of the metrics are composites that are computed by comparing two or more variables from the ACS

A number of the variables above can also be broken up into cohorts, which will give you even more insight into how an area is doing. For example, an area may show a low median income, however when looking at the cohorts, it may show a bimodal distribution of income at both the lower and higher end. This could be an indicator of an area that is going thought the early stages of gentrification.

I'd also encourage you to look at the deltas, or change, for some of the indicators mentioned above. This will better help you get an understanding of not just where market is today, but also where it may be heading. You wouldn't want to buy into an area that is declining rapidly where the tenant quality is decreasing along with the area.

Bureau of Labor Statistics: Current Employment Statistics (CES)

The Current Employment Statistics (CES) program produces detailed industry estimates of employment, hours, and earnings of workers on payrolls every month. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites.

The CES is the gold standard when it comes to analyzing the job growth of a market. As an investor you will want to look at the number of jobs add/removed within a market. In addition to this figure, the CES provides more granular data for jobs tabulated using the North American Industry Classification System (NAICS). This system allows you to get a very detailed picture of how the local job market is composed. You will want to avoid markets where a single industry dominates the local economy in the number of jobs since these kinds of markets a incredibly susceptible to swings in the market.

Census Bureau: Building Permits Survey (BPS)

The purpose of the Building Permits Survey (BPS) is to provide national, state, and local statistics on the number and valuation of new privately-owned housing units authorized by building permits in the United States. The Building Permits Survey covers all "permit-issuing places," which are jurisdictions that issue building or zoning permits. About half of the permit-issuing places in the United States are surveyed monthly. The remainder of places are surveyed annually.

Using data from the BPS, investors can get an idea of the supply and demand dynamics within their market. Coupled with migration data from the ACS, this can be a very powerful dataset to use when attempting to predict future housing prices, vacancy, and absorption rates.

Federal Bureau of Investigation: Uniform Crime Reporting (UCR)

The Uniform Crime Reporting (UCR) program compiles official data on crime in the United States, published by the Federal Bureau of Investigation (FBI). UCR is a nationwide, cooperative statistical effort of nearly 18,000 city, university and college, county, state, tribal, and federal law enforcement agencies voluntarily reporting data on crimes brought to their attention. UCR data is published annually by the FBI.

UCR data is reported as either violent or property crime, which then break down further into eight possible sub-crime categories. Investors will want to ensure that the areas they are investing into have low rates of crime, or are at the very least improving over time.

Consumer Financial Protection Bureau: Home Mortgage Disclosure Act (HMDA)

The Home Mortgage Disclosure Act (HMDA) requires many financial institutions to maintain, report, and publicly disclose loan-level information about mortgages. HMDA data is the most comprehensive source of publicly available information on the U.S. mortgage market. HMDA data is released annually.

Investors can look at the types of loans being given, weather the property is used a primary residence or investment, and the demographic information of the borrower. It's possible to also tabulate the data by the type of property (residential or commercial). This data is tabulated at the census tract level, which allows for a tremendous about of granularity when conducting market research. Investors should use this data to identify areas where other investors are buying as well as to get a better understanding of the demographics of buyers in the area.

Census Bureau: Decennial Census

This is the census that most of us are familiar with. It has been administered to all households in the country every decade since 1970.

Investors should use this data set when more granularity or long term trend data is desired than what the ACS offers. However, one should be leery of the data once a few years have passed since the census was taken since demographics can change rather quickly in small areas.

Honorable Mentions:

The datasets below are ones that I have come across in my research, but have not yet had the chance to fully go through. Nonetheless, they will likely provide investors with even more actionable data.

• Internal Revenue Service: Statistics of Income Migration Data (SoI Migration)
• Census Bureau: Value of Construction Put in Place Survey (VIP)
• Census Bureau: Current Population Survey - (CPS)
• Department of Housing and Urban Development (HUD): Survey of Construction (SoC)
• Census Bureau: Survey of Market Absorption of New Multifamily Units (SOMA)

Remember that real estate is hyperlocal and it's important not only to find a market that posses mostly positive indicators but also a sub-market that has the same positive characteristics. Locations with poor indicators will attract poor tenants and the quality of the tenant base is often more important than property you select itself.

I think it's more important than ever for investors to look at the data as we reach the end of the longest bull market in US history. Investors that allocate into places with good market indicators will fare much better in the looming recession and will avoid making an extremely costly mistake.

By looking at the data you will be leaps and bounds ahead of the competition.

Let me know if you have any other questions, hope this helps!

Ronan Donnelly · Answer

It's a good idea to search for an optimal market in which to invest, one with cashflow favorable economics (population growth, wage growth, employment growth etc) and a balance between supply and demand. Similar to strategies though there is money to be made in every market so don't obsess on this one.

Focus more on being able to identify, analyze and close on deals, this is the key. Good luck

help on identifying the best areas to buy real-estate investment?

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