Selecting a Submarket

[Jeff Jenkins]

Hey BP!

What's a simple way of determining a desirable submarket for multi-family investing? For example, I plan to invest in Houston, but am uncertain as to which submarkets are ideal. Is it simply speculated supply and demand, or is there a simpler approach?

Thanks!

Jeff

[Giovanni Isaksen]

For us the first level is finding potential: Growing population in an area with growing jobs near convenient transportation, shopping, services and entertainment options. Search the US Census, Bureau of Labor Statistics, City Data.com, Local Chamber of Commerce, city and county economic development depts.

The second level is supply and demand: How many units exist, what is the trend of vacancy, what is the trend in concessions, how many are being built, how many are in the planning pipeline, how many new jobs does it take to absorb a new apartment unit, how available is land for new apartments, how difficult is it to entitle, permit and build in the jurisdiction. Search city and county building departments, multifamily broker's research departments (such as Marcus & Millichap), multifamily lender's research departments (such as Hendricks Berkadia) apartment data providers (such as alndata.com, MPF Research, Axiometrics, Real Data, etc.)

Third level is getting the perspective of the local folks in the trenches: Property managers, lenders and loan brokers, RE brokers who specialize in multifamily. Learning the good and bad neighborhoods and their boundaries comes from talking with local lenders and loan brokers about where they like to lend and where they avoid. Local prop managers will know what the tenant issues are in the neighborhoods. Good apartment brokers will know what's transacting as well as who the players are in the neighborhood and what the history is.

Fourth level is boots on the ground, yours. Drive the neighborhood in the day and during the night, what do you see, hear and sense? Go into the local stores and restaurants and talk to the people working there. How is business, who are their customers, where do they work. Is the neighborhood improving or declining? Where do you see it going in five,r ten or twenty years?

If that seems like a lot of work to do before you even look at one property, know that your top competitors are doing that every day. If you want to avoid getting stuck with the scraps they reject you'll have to know what they know. It's what we do and it's not complicated but it takes time. I suppose the 'simple' way is to believe what the listing broker says....

Good hunting-