What are your 10 Metrics For Finding A Multifamily Market?

Question

Please add anything to this list! For instance, we could get more granular and say “Uhaul Traffic.” I often come across investors who are afraid to invest outside of their own backyard. Think for a moment how limiting this is. Most primary and even secondary and tertiary markets in the US don’t cash flow. I get it; it is the world of the unknown, and it will take a lot of homework, but we have the data and technology to make it happen. We can now frame our investment around critical parameters that will increase our chances of succeeding. Here is a checklist:

1) Job Growth - Job growth is a leading indicator of population growth.

2) Population Growth - Finding an area with long-term upward population growth trends (not a temporary bump) is vital.

3) Job Diversity – Make sure that the pie chart is evenly divided.

4) Landlord/Tenant Laws – Pretty much the “Red States.”

5) Taxes – We all know how this can affect the bottom line. Check-in with the assessor.

6) Geographical Features – Think Mountains and Oceans, but let’s include human-made features like train tracks, airports, and smelly factories.

7) Cost of Living – Needs to be affordable to make the numbers work, and if provides a buffer for future growth.

8) Local News – What is the economic buzz that will fuel the path of progress.

9) Local Government – Strong leadership from the local government is attractive to corporations, which means that job growth will continue.

10) Whether You Have an Unfair Advantage – Did you live there? Go to college there? Have a cousin there?

Arn Cenedella · Answer

@Rick Martin

Great list to focus on during market evaluation.

I would suggest investors focus on two or three markets maximum.

The last metric Unfair Advantage could also be described as Competitive Advantage. Where is your market knowledge, network and connections strongest?

Real estate is very local. Within a 5 minute drive, the character of a neighborhood or sub market can change dramatically.

Rick Martin · Answer

competitive advantage has a more positive spin on it @Arn Cenedella. I like it.

Arn Cenedella · Answer

@Eric Sullivan

So important and sometimes overlooked.

After 40 years plus in real estate, I can say one truth is as follows:

If you need to hire an attorney, if you need to go to court......to enforce the terms of a written agreement.......you have already lost......attorney fees billed at $300 an hour mount up faster than a taxi meter......court costs, depositions, expert review and testimony........you will hit $25,000 to $50,000 in legal fees so quick your head will spin......in the meantime, property operation deteriorates.

To be clear, I am NOT advocating against having a written partnership agreement - rather pointing out if one gets to the point where legal action is required, that is already be definition a worst case scenario.

By all means, a written partnership agreement is mandatory.

But....in my opinion, what’s more important than the written word is the character and integrity of your partners - everyone’s willingness to co-operate and work together to make the investment work - understanding one is not always going to get “their way”. Issues will come up and folks will have different opinions - the team can disagree but then whatever the decision is, everyone on the team needs to commit and move forward together.

I recently closed a joint venture with four other investors on a small multifamily project. This group has done 5 or 6 single family fix and flips together over a period of 12 to 18 months before we bought a multifamily property. So, we got to know each other. We got to understand how each of us works. We got to see each guy carried his own oar and contributed to the team. We are friends and enjoy nothing more than going down to a local brewery having a couple beers and discuss real estate. We have a written JV agreement in place but the truth is - we will never have to “use” it. Our partnership is based on trust and friendship developed over time.

Spencer Gray · Answer

Great topic and perfect timing.

First, however, great list @Rick Martin.

Here are a few additional and specific market metrics I'm using right now given the current economic conditions:

• Year over year job growth >-3%  
• Population >100,000
• Year over year market rent growth >3%
• 12 Months Unit Absorption >200 units
• Market average cap rate >5.5%

The YOY job growth is obviously specific to the current recession. We are targeting resilient and growing secondary and tertiary markets that are flying "under the radar."

Eric Sullivan · Answer

@Arn Cenedella I think you hit a big intangible point about relationships and connections. If moving into a new market with out relationships you should plan to spend the time to figure out who the players are there.

Rick Martin · Answer

@Ola Dantis true. The Millennial and Baby Boomer demographic are shaping housing trends.

Ola Dantis · Answer

I'd add the age of the population moving there.

Are these Millenials? If so, which age band? Childbearing age? Because this is key to determine if the people moving there are going to live in our apartments OR are they moving to the city to buy a home in the suburbs near great school districts?

One can get super nitty-gritty with this kind of data.

Rick Martin · Answer

@Senate Eskridge a little while back I shared this post with A BUNCH OF FREE RESOURCES included:

https://www.biggerpockets.com/...

There is some great stuff in there.

Jeffrey Donis · Answer

Awesome list!

I would anchors such as universities.

Jeffrey

Mallikarjun Reddy Pateel · Answer

@arn

@Arn Cenedella

totally agree with what you said, but I'm not saying I will jump on to new market every single day I do have my base markets which my primary focus will be. at the same time if there is an Opportunity I'm chasing it, Yes definitely this business is all about relationships I'm confident enough on data that's available online and the work I'm going to put in all the work exploring those opportunities. and you can do reverse engineering, get a deal first and then talk to brokers get your boots on the Ground. as u said it's not possible to be an expert in 8 different markets. but focusing on only one completely new market will definitely Possible. i think it breakdowns to how much risk one is willing to take

What are your 10 Metrics For Finding A Multifamily Market?

Most Popular Reply