Evaluating a Real Estate Market

The first and most important task in Real Estate is to select a market. However, many variables come into play during the process, like population growth, employers, and area amenities. Here are some of the key areas to consider when evaluating a market.

Population Growth

This is a key indicator to assess the overall health of a location. The more people move to a location, the more services will be needed, and the more real estate demand you will have. In addition, growth is an important indicator used by corporations when looking to expand operations. A great resource is the US Census (https://www.census.gov/). For example, the 10-year population growth of our market in the Harrisburg-Carlisle area is 7%. This number is in line with the national 10-year average of 7.4%. A great resource to gather population information and other important indicators is https://www.bestplaces.net/.

Key Area Employers

Is the area dependent on one industry, or is the area diversified? The more diversification, the better to avoid situations like the one lived in Detroit with the auto industry. Are some of the key industries poised for growth? For example, in our market, we see a lot of growth behind supply chain and logistics operations. Following the pandemic, we know that the industry will continue to grow.

Price to Income Ratio (Median Household Value/Median Household Income)

This indicator considers two important variables, the median household value and the median household income, to determine if houses are overvalued or not. The US average is 4.4 (Source: HOI National Association of Homebuilders). The main objective here is to be around or below the US average. Our market is around 3.2, making it below the US average.

Vacancy Rate (Number of Days Vacant/Number of Rentable Days)

A high vacancy rate will be problematic and indicates that properties are not renting. The US rental vacancy rate is 5.8% (Third Quarter 2021). The objective is to be below the US average.

School Districts

Selecting a good school district will highly depend on the type of property. If you are looking at investing in one-bedroom multifamily, the importance of a good school district might not be that high as your tenant will likely not have children. Overall, good school districts will provide additional cushion to investors as properties tend to be more valuable in these areas. I look for school districts rated 5 or higher per https://www.greatschools.org/. Another great resource is www.niche.com

Crime

Crime is another indicator used to evaluate a market. Please note that crime data is measured differently across communities and will not always be accurate. Some good websites to gather information from are https://www.neighborhoodscout.com/ and https://www.city-data.com/.

Environment

Environmental factors are critical when buying a property. Always check if areas are prone to flooding. Here’s the best resource from FEMA https://msc.fema.gov/portal/home. Super fund sites are another critical factor to evaluate as areas could be polluted or contain hazardous waste. Climate considerations are also important.

Conclusion

These are some of the critical factors to consider when evaluating a market. In the markets we invest in, we always consider these critical elements. Further real estate rankings can also help you in selecting a market.