How do you evaluate markets for investing?
Member since 2023 · 52 posts · 45 votes
How do you evaluate markets for investing?
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Eric FernwoodBusiness Member
Realtor · Las Vegas, NV · Member since 2014 · 994 posts · 1k+ votesQuote from @Annette Barnett:
What resources, information, services, tools, publications, professionals, etc. do you utilize to evaluate markets for investing?
Selecting the right investment city is the most important decision, not the property. Rent growth and appreciation are not property features; they are driven by the city. Think of the city as a harbor and rents and prices as boats. When the population grows, all boats rise. When population growth slows or declines, rents and prices stall or fall.
Financial independence is not a one-time event or a fixed number. It requires income that meets specific conditions, most of which are determined by the investment city.
- Rents outpace inflation: Your rental income must increase faster than inflation to cover rising costs. Cities with significant and sustained population growth are likely to meet this requirement.
- Lifelong income: To have rental income for life, your tenants need to keep their jobs and earn more money over time, or you will not be able to increase rents fast enough to outpace inflation. But most companies only stay in business for 10 to 18 years. Cities that keep bringing in new companies usually have three things in common: they're safe, they have over one million people (which means good roads, services, and workers), and they're affordable for businesses to operate in (lower taxes, less regulaitons).
- Low risk of natural disasters: A city with a low risk of natural disasters. Major disasters damage property and disrupt the local economy. Businesses close, jobs disappear, and people move away. Insurance may cover repairs, but it doesn't restore demand. Recovery can take years and in some cases, it never fully happens. During that time, your expenses, such as mortgage payments, taxes, insurance, and maintenance, continue.
Evaluating every potential city is impractical, so use the following elimination filters:
- Population Growth: Start with cities having a metro population over 1 million and consistent and significant growth. Wikipedia
- Low Crime: Avoid cities on this list: CBS: The 50 Most Dangerous Cities in America.
- Low Operating Costs: High operating costs can turn a profitable property into a money pit. Consider property taxes and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree. Insurance costs also indicate the likelihood of natural disasters. For example, insurance in Las Vegas runs about $800/year, while Florida insurance averages over $10,000/year.
- No Rent Control: Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control. Do a Google search on something like “[city] rent restrictions”.
- Rising personal income: you're making a 20 to 30 year investment. Rents cannot increase long-term unless the personal income in the area also rises. For example, here is a federal reserve chart showing personal income growth in Clark County Nevada (Las Vegas).
- Local Investment Team: While general knowledge from seminars and books is helpful, local expertise is crucial for specific purchases. Only an experienced local investment team can provide the resources and knowledge you'll need.
After filtering out cities that don't meet all the requirements above, you'll have a shortlist for further consideration. If you invest in a city that fails to meet these criteria, you're almost guaranteed not to achieve—or sustain—financial independence.
A similar process exists for selecting properties that are likely to perform best. Contact me if you'd like more information.
FERNWOOD Team, KW VIP Realty520 Reviews
4 Replies
- 6moEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 994 posts · 1k+ votesHello Annette,
Quote from @Annette Barnett:
What resources, information, services, tools, publications, professionals, etc. do you utilize to evaluate markets for investing?
Selecting the right investment city is the most important decision, not the property. Rent growth and appreciation are not property features; they are driven by the city. Think of the city as a harbor and rents and prices as boats. When the population grows, all boats rise. When population growth slows or declines, rents and prices stall or fall.
Financial independence is not a one-time event or a fixed number. It requires income that meets specific conditions, most of which are determined by the investment city.
- Rents outpace inflation: Your rental income must increase faster than inflation to cover rising costs. Cities with significant and sustained population growth are likely to meet this requirement.
- Lifelong income: To have rental income for life, your tenants need to keep their jobs and earn more money over time, or you will not be able to increase rents fast enough to outpace inflation. But most companies only stay in business for 10 to 18 years. Cities that keep bringing in new companies usually have three things in common: they're safe, they have over one million people (which means good roads, services, and workers), and they're affordable for businesses to operate in (lower taxes, less regulaitons).
- Low risk of natural disasters: A city with a low risk of natural disasters. Major disasters damage property and disrupt the local economy. Businesses close, jobs disappear, and people move away. Insurance may cover repairs, but it doesn't restore demand. Recovery can take years and in some cases, it never fully happens. During that time, your expenses, such as mortgage payments, taxes, insurance, and maintenance, continue.
Evaluating every potential city is impractical, so use the following elimination filters:
- Population Growth: Start with cities having a metro population over 1 million and consistent and significant growth. Wikipedia
- Low Crime: Avoid cities on this list: CBS: The 50 Most Dangerous Cities in America.
- Low Operating Costs: High operating costs can turn a profitable property into a money pit. Consider property taxes and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree. Insurance costs also indicate the likelihood of natural disasters. For example, insurance in Las Vegas runs about $800/year, while Florida insurance averages over $10,000/year.
- No Rent Control: Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control. Do a Google search on something like “[city] rent restrictions”.
- Rising personal income: you're making a 20 to 30 year investment. Rents cannot increase long-term unless the personal income in the area also rises. For example, here is a federal reserve chart showing personal income growth in Clark County Nevada (Las Vegas).
- Local Investment Team: While general knowledge from seminars and books is helpful, local expertise is crucial for specific purchases. Only an experienced local investment team can provide the resources and knowledge you'll need.
After filtering out cities that don't meet all the requirements above, you'll have a shortlist for further consideration. If you invest in a city that fails to meet these criteria, you're almost guaranteed not to achieve—or sustain—financial independence.
A similar process exists for selecting properties that are likely to perform best. Contact me if you'd like more information.
FERNWOOD Team, KW VIP Realty520 Reviews - Member since 2023 · 52 posts · 45 votes6mo
Thank you so much! There's some new info here I hadn't considered. Are there any other resources, tools, etc. that you utilize to discover this info?
- Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes6mo
Quote from @Annette Barnett:
What resources, information, services, tools, publications, professionals, etc. do you utilize to evaluate markets for investing?
I look at the usual stuff like job growth, population trends, supply, all that. But honestly, that only tells you where things have already been going.
What I’ve started paying more attention to is where stress is building before it shows up in pricing. Things like code enforcement activity, permit issues, vacancy signals, that kind of stuff. You’ll often see those cluster in certain pockets before you see any real movement in comps or listings.
Some markets can look great on paper but already be picked over. Others look average but have pockets where something is clearly starting to break.
For me it’s less about finding the “best” market overall and more about finding areas where something is changing and you can get in front of it.
- 6moDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 974 posts · 641 votes
We typically combine macro data like population growth, job trends, and supply pipelines with local insights from operators and property managers who are actually in the market day to day. The real time feedback!! On top of that, we stress test deals against current conditions rather than projections, especially in markets that have recently seen a lot of new supply. In our group, a big advantage is having multiple perspectives across different markets, which helps spot trends or risks you might miss on your own.
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