Seven-Step System for Evaluating a Market

[Jorge Abreu]

Step 1 Population Growth

Use city-data.com to research the city’s population

Goal: Since the year 2000, has the city’s population gone up at least 20% (Ex: Phoenix, Orlando, Las Vegas, Columbus Ohio)

Step 2 Income Growth

Use city-data.com or bestplaces.net to research the city’s income growth

Goal: 30% income growth since the year 2000. This implies that the city is keeping up with inflation. If it’s not keeping up with inflation than you end up with high levels of delinquency, especially in Class C properties.

Step 3 Median House Value

Use city-data.com to research the city’s median house or condo value

Goal: 40% increase in median house or condo value since the year 2000.

Step 4: Amount of Crime

Goal: Under 500 crimes in the previous year. You want to see that the number of crimes has come down over time.

If you apply these four principals, you will stay away from cities that will not flourish during an economic down turn. Next, you want to look into the neighborhood within that city.

Step 5: Neighborhood Household Income

Goal: Income needs to be between $40K-$70K

This is ideal in order to generate the cap rate necessary for a successful syndication and stay above the increase in delinquency marker. Under $40K household income is tied to increase in delinquency. Above $70K, the neighborhood demands a lower cap rate, therefore best for a REIT acquisition vs. a syndication.

Step 6: Neighborhood Poverty Level & Neighborhood Unemployment Rate

Goal: Poverty Level below 20%

Never invest in a neighborhood where the poverty level is above 20%. Above the 20% mark, your unit churn expense will kill any and all profit.

Google unemployment rate for the city

Goal: Make sure that the neighborhood unemployment rate is not more than 2% higher than the city’s unemployment rate. If it is higher, than the moment a recession hits, the unemployment for that neighborhood is going to skyrocket.

Step 7: Neighborhood Demographic Diversity

Goal: You want there to be at least two demographic races of people that make up the neighborhood.

Note: You don’t buy for good times, you by for bad times and always stress test every deal!

👉Next: Exploring the Four Multifamily Asset Classes

[Remington Lyman]

Quote from @Jorge Abreu:

Step 1 Population Growth

Use city-data.com to research the city’s population

Goal: Since the year 2000, has the city’s population gone up at least 20% (Ex: Phoenix, Orlando, Las Vegas, Columbus Ohio)

Step 2 Income Growth

Use city-data.com or bestplaces.net to research the city’s income growth

Goal: 30% income growth since the year 2000. This implies that the city is keeping up with inflation. If it’s not keeping up with inflation than you end up with high levels of delinquency, especially in Class C properties.

Step 3 Median House Value

Use city-data.com to research the city’s median house or condo value

Goal: 40% increase in median house or condo value since the year 2000.

Step 4: Amount of Crime

Goal: Under 500 crimes in the previous year. You want to see that the number of crimes has come down over time.

If you apply these four principals, you will stay away from cities that will not flourish during an economic down turn. Next, you want to look into the neighborhood within that city.

Step 5: Neighborhood Household Income

Goal: Income needs to be between $40K-$70K

This is ideal in order to generate the cap rate necessary for a successful syndication and stay above the increase in delinquency marker. Under $40K household income is tied to increase in delinquency. Above $70K, the neighborhood demands a lower cap rate, therefore best for a REIT acquisition vs. a syndication.

Step 6: Neighborhood Poverty Level & Neighborhood Unemployment Rate

Goal: Poverty Level below 20%

Never invest in a neighborhood where the poverty level is above 20%. Above the 20% mark, your unit churn expense will kill any and all profit.

Google unemployment rate for the city

Goal: Make sure that the neighborhood unemployment rate is not more than 2% higher than the city’s unemployment rate. If it is higher, than the moment a recession hits, the unemployment for that neighborhood is going to skyrocket.

Step 7: Neighborhood Demographic Diversity

Goal: You want there to be at least two demographic races of people that make up the neighborhood.

Note: You don’t buy for good times, you by for bad times and always stress test every deal!

👉Next: Exploring the Four Multifamily Asset Classes

 I have lived in Columbus, Ohio since 2012. It is amazing to see the population growth.