How Much Do You Personally Look at Macro Trends RE Market?

Question

Hi- I am wondering how much you look at marco market tends when deciding where to start your search for investment deals? For instance I would like to live near an investment property (or, depending on the strategy I employee, I will need to live near the property). But, I live in the northern suburbs of Chicago. Our taxes are high and ppl are leaving the state to move down south. If you do not mind me asking, how much would this trend effect your personal decision to invest in this neck of the woods?

I see lots of ppl where from Illinois and am wondering what you make with this trend?

Thanks in advance for your thoughts!

-Tim

I see lots of ppl where from Illinois and am wondering what you make with this trend?

Thanks in advance for your thoughts!

-Tim

Taylor L. · Answer

I always start with macros. We want to invest in markets where the trends are on our side. Those trends being net migration, jobs & employment, industry diversity & other aspects along those lines. I disagree that we are not buying a market, we most certainly are buying a market.

That doesn't mean a good market makes a good deal, but it's an awful lot harder to renovate & command higher rents when rental demand is falling because people are leaving.

My family is originally from steel country PA. My grandfathers worked at the same steel mill, even! The steel industry left rural Pennsylvania, as did the jobs, income, and ultimately many of the people. That did not bode well for rents or property values. If you were buying apartment buildings 30 years ago, I can confidently say your money would have been better placed elsewhere, in markets with growing jobs.

I prefer to learn from examples I can see, and I've certainly seen the impact of job losses, stagnant or falling median incomes, and net out-migration. As property owners we want those trends to be on our side as tailwinds, not headwinds holding us back. Why not start by selecting markets that have promising futures? If I could wave a magic wand and create a bustling economy and jobs in every market, I absolutely would - but I don't have that and I don't think anyone else does either.

John Warren · Answer

@Tim O'Rourke I would tend to agree with @Josh Caldwell. Unless you are buying 200 unit apartment communities, then population decline is not really going to affect you if you are in Chicago or the Chicago metro area. I think people tend to overstated the decline in a large metro like Chicago... we are the third largest market in the nation still so even if we slide down below another city we will be... the fourth largest place. If you are buying a 2-4 unit or even a six flat, you are going to be 100% fine.

Danny Webber · Answer

I follow macro daily

Jonathan Klemm · Answer

@Tim O'Rourke - Funny I was just talking about this topic with another investor.  I personally don't pay an extreme amount of attention to marco trends (yet) because I am not investing on a macro level yet.

I am more focused on the trends of the area I am investing in (Chicago in my case) and like you, for my first handful of deals I prefer to be close to them.

People get wealthy investing in real estate in every market and you are going to pay uncle sam one way or another.  It might be high property taxes in Illinois or high sales tax in Texas, all relative for the most part (my opinion).

Invest where you feel comfortable.  Deals are everywhere.

John Warren · Answer

@Tim O'Rourke listen carefully to all of this advice. There is wisdom from everyone on here, but keep in mind the type of investing they are doing. Again, if I was buying an apartment complex with agency financing, I would buy in a growth market. That is because the management of those assets is totally different with onsite leasing, management and maintenance. You can buy those anywhere and as long as your regional is good you are all set. You also don't get that great of a discount on those properties most of the time since everyone at the table has high net worth and is using professional management.

You on the other hand will be buying from a local Mom and Pop type of owner. Net out migration will have zero impact on you unless the Chicago MSA drops like a million people (it won't). I made the mistake of going out of state early on. We live in one of the greatest markets to invest in anywhere in the world if you are buying small multifamily. Learn your local submarkets and get after it!

Zach Gring · Answer

@Tim O'Rourke

If you’re from north side of Chicago look up north in Wisconsin. I stay in touch with some of the markets on south side of Milwaukee. Just be careful the micro markets up there switch in short distances.

The migration is there here in Illinois but, you want to be near your first investment so come up with your exit strategy before you buy. Have a 2 or 4 year exit plan. That macro negative migration in my opinion isn’t going to effect you on a sfr or small multi. Don’t let it be your reason for not jumping in.

Josh Caldwell · Answer

Hi Tim

That is a very good question.  I personally don't care about market trends at all.  I am not buying a market. I am buying individual properties that must stand or fail on their own merit.  If I can step into a bargain house that has a 20% cap rate and the sale price is 1/2 of what the property worth (an extreme example) why would I care about value trends in my MSA?  Now if I am doing a flip, then I need to be very concerned about this data, as it affects my hold time and after repaired value.

I hope that helps

Josh

How Much Do You Personally Look at Macro Trends RE Market?

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