Investor · San Diego, CA · Member since 2011 · 15 posts · 13 votes
Hey All!
I've been a high value residential real estate investor for 9 years in northern New Jersey. For many reasons I've decided to leave this business model and switch my focus to acquiring apartment complexes. My goal is to acquire 100 rental units by the end of the year in a new up and coming market.
Due to high taxes, high acquisition cost and renter friendly laws here in New Jersey I am looking to buy my properties outside on New Jersey/ New York. I'm considering Texas, Florida, North and South Carolina however I am open to any emerging market across the Country.
My questions are for the experienced investor in this forum...
1) What are the defining factors for you to invest in a new market?
2) What markets are you currently investing in and why?
I would love to create a on going conversation on this topic as I am open to sharing all of my research on up coming markets.
The key factor in determining whether a market will grow is job growth. We look at the previous 2 years and the forecasted 5 year job growth. You can get these numbers from the Bureau of Labor Statistics. Also subscribe to sites like AreaDevelopment, National Multifamily Housing Council, and read the Milken Institute's Top 200 Performing Cities.
Besides job growth we look for the following items:
Population 100k+
Average household formation size less than 2.5
Well diversified economy (pull up list of largest employers from the Chamber website)
Percentage of population between 24-35
Percentage of male vs female
Rent price trends
Vacancy rates
Supply (look at number of new permits pulled & compare to current available units vs. forecasted household demand within next 24-36 months)
Active Economic Development Committee
If you're interested in learning more about emerging markets and how to identify them, I'd also recommend reading Dave Lindahl's Emerging Real Estate Markets book (link to book on Amazon).
I'm just getting started in rei but the topic of emerging markets has been my focus as of late as it's clearly a vital factor in buying right.
The only real book I've found on the topic is a book called Emerging Real Estate Markets by Dave Lindahl. He has a list of economic indicators he looks at, which seem to revolve around new jobs coming to the area and watching building permits (among other things).
Thanks for the thread, I'm very interested to hear about your and other investors thoughts on the subject.
I am currently in the Kansas City, MO market. We see great return on investments as well as a great job market. Several amenities and low cost of living make KC very desirable.
@Eric Moeller TX is a landlord friendly state but if you don't like the high property taxes in NJ, you won't like them any better in TX. TX also has some of the highest insurance rate in the nation. You might want to look at the Midwest. I like Indianapolis and Kansas City.
Hi Eric, I am eager to hear what others have to say about emerging markets as well. It seems like only Josiah has addressed this so far. I am reading the same book by Lindahl and also his book Multifamily Millions. I keep wondering how people search our vast country for emerging markets and whether the cities that repeatedly come up in BP for strong cash flow, and that have job growth and job diversity, are simply sitting in front of me as the answer. I'm in California, and many people here invest out of state. Perhaps not a lot of people go beyond their local markets in general, so the concept of emerging markets is only in mind for people willing to invest from afar or move around the country.
@Eric Moeller Thats a fantastic question and one I am currently answering for myself!
Heres the overview of what metrics I am currently compiling across various southeastern markets.
1) Population, at least 250k in the MSA
2) Jobs and Job growth, Job growth needs to be at least above 2.5% to indicate a progressive economy.
3) Unemployment Rate (should be below the state and national average to indicate proper growth)
4) New product added (especially for multifamily)
5) Absorption rates over a period of time (probably the last 12 months and then projected over the net 12 months)
Of course there is much much more, but this is a start...
I am currently looking for multifamily product in all of your major southeastern coastal markets as well as RDU NC and Greenville SC, I would say that the only MSA to stay away from right now is Atlanta, its smoking hot across the board and even more so for multifamily product... Hot markets do not equal emerging markets...
Also, if your getting into the apartment game @John Cohen would be a great resource to reach out to...
The key factor in determining whether a market will grow is job growth. We look at the previous 2 years and the forecasted 5 year job growth. You can get these numbers from the Bureau of Labor Statistics. Also subscribe to sites like AreaDevelopment, National Multifamily Housing Council, and read the Milken Institute's Top 200 Performing Cities.
Besides job growth we look for the following items:
Population 100k+
Average household formation size less than 2.5
Well diversified economy (pull up list of largest employers from the Chamber website)
Percentage of population between 24-35
Percentage of male vs female
Rent price trends
Vacancy rates
Supply (look at number of new permits pulled & compare to current available units vs. forecasted household demand within next 24-36 months)
Active Economic Development Committee
If you're interested in learning more about emerging markets and how to identify them, I'd also recommend reading Dave Lindahl's Emerging Real Estate Markets book (link to book on Amazon).
@Michael Sjogren, I have tried to find forecasted job growth before on the Bureau of Labor Statistics website and was not able to figure it out. Do you have a quick tip for doing this? Thanks in advance!!
Hi @Vanessa Vandervalk. Yes, I agree, this was one of the most challenging pieces of information to find! Here is a link to a site that includes resources for finding employment projections for each state. I found this link at the bottom of the BLS site under the "Other Useful Links" section > "Projections Central."
Some other sites for demographics are listed below.
@Matt McCourry, curious to gain more insight from you why you don't like Atlanta?
I am under contract on a 240 unit deal in Atlanta, B asset in a B- area, purchase price is $9.4 million and it appraised at $9.9 million. In my opinion, the core fundamentals of this market are still very strong and my exit strategy is to sell this asset in the next 3 to 5 years.
I have experience with emerging markets as my 200+ unit deal I bought in Dallas, TX for $6 million in July 2014, I refi'd in October 2015 for over $10 million and will be selling in 2016.
@Matt McCourry, curious to gain more insight from you why you don't like Atlanta?
I am under contract on a 240 unit deal in Atlanta, B asset in a B- area, purchase price is $9.4 million and it appraised at $9.9 million. In my opinion, the core fundamentals of this market are still very strong and my exit strategy is to sell this asset in the next 3 to 5 years.
I have experience with emerging markets as my 200+ unit deal I bought in Dallas, TX for $6 million in July 2014, I refi'd in October 2015 for over $10 million and will be selling in 2016.
That's a heck of a deal Brian!
You mention the "core fundamentals" in that market are good. Do you have a specific process or model you use follow for evaluating a given market?
Yes I do follow a process. As a CPA I am all about checklists, systems and process.
The biggest thing for me in evaluating a market, and some smart people in this thread have already covered it - is Job and Economic Growth.
From a process perspective, I try to keep my real estate investing approach simple and it boils down to 2 things - "Deals & Dollars". I need the right Deal to show my investors, and I need the right investor (Dollars) for the Deal.
I work the system backwards meaning if I know what my investor is looking for like a value-add deal in X market, their return and cash flow requirement of Y, and their amount of capital to invest is Z, I go shopping in the market to find a good deal for the investor.
If I don't like the core fundamentals of that market, I let the investor know my reasons so I can educate them and hopefully show them a deal in a market that does meet their requirements.
Yes I do follow a process. As a CPA I am all about checklists, systems and process.
The biggest thing for me in evaluating a market, and some smart people in this thread have already covered it - is Job and Economic Growth.
From a process perspective, I try to keep my real estate investing approach simple and it boils down to 2 things - "Deals & Dollars". I need the right Deal to show my investors, and I need the right investor (Dollars) for the Deal.
I work the system backwards meaning if I know what my investor is looking for like a value-add deal in X market, their return and cash flow requirement of Y, and their amount of capital to invest is Z, I go shopping in the market to find a good deal for the investor.
If I don't like the core fundamentals of that market, I let the investor know my reasons so I can educate them and hopefully show them a deal in a market that does meet their requirements.
Hope this makes sense...
Yes, it does. Thanks for boiling it down a bit further.
"Deals and Dollars" sounds like what Lance Edwards focuses on in his book "How To Make Big Money in Small Apartments". You're clearly going for bigger deals, like I plan to myself, but deals and dollars seems to be a good way to reduce things.
@Josiah Mann, I am not familiar with Lance Edwards and I don't want to hi-jack @Eric Moeller thread, but when I first started out I made everything to complicated...keep it simple!!
@Brian Adams Not so much that I don't like it, as it is where the research is pointing. Atlanta is starting to cross over into the Hypersupply or "Sellers Market Phase 1" (as Dave Lindahl would call it). Although it is still in the beginning stages, competition is getting fierce and unless your already rooted in the market it would be tough accurately gage where its headed.
That deal you have there is a heck of a deal though, congratulations! And I like the other posts about "deals and dollars" Where I am at in my business right now, it doesn't make sense to go boxing down in Atlanta, thats not to say that there aren't deals to be had!
@Michael Sjogren Great post! Thanks for the additional links, and the BLS is a great resource but a nightmare to use...
I've been a high value residential real estate investor for 9 years in northern New Jersey. For many reasons I've decided to leave this business model and switch my focus to acquiring apartment complexes. My goal is to acquire 100 rental units by the end of the year in a new up and coming market.
Due to high taxes, high acquisition cost and renter friendly laws here in New Jersey I am looking to buy my properties outside on New Jersey/ New York. I'm considering Texas, Florida, North and South Carolina however I am open to any emerging market across the Country.
My questions are for the experienced investor in this forum...
1) What are the defining factors for you to invest in a new market?
2) What markets are you currently investing in and why?
I would love to create a on going conversation on this topic as I am open to sharing all of my research on up coming markets.
Thank you and I look forward to hearing from you!
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I wonder what Dave Lindahl would classify Cleveland Ohio as of January 2020. What does everybody else think?