How To Identify Your Real Estate Market

We are going to tell you our secret, how we identified our markets, well the first thing we did was, we wanted to identify probably two to three core markets, things we looked at were, strong employment growth, strong employment drivers, strong population growth and also want to see strong income growth as well. Income, employment, and population were three drivers that we wanted when we identified the three markets, another thing for us, we wanted some sort of boots on the ground, that could give us some insight about the opportunities that were going to be coming our way, the buildings themselves, the neighborhoods, so initially, we identified Louisville, Greensboro, and San Antonio as our three markets, that had that strong employment growth, strong population growth, and strong income growth.

But obviously, once you get the identification of the markets, you do want to be mindful of what's going on within the submarkets and the neighborhoods, so from there, we took a deeper dive into areas that we liked, which areas didn't have too much supply growth coming online, didn't have too much new construction in the pipeline or if there was, we wanted to make sure that there was diverse employment, if there were a strong employer that would move out of the area, that it doesn't have huge population spikes, but has a moderate population growth. We were looking some markets where it wasn't really a ton of new construction coming on and also still what the population was growing and it just had a number of B, C assets that were still existing, so that's why that market made sense, that's kind of how we pushed into a lot of our markets and through those things.

Pricing is the biggest thing, I think the markets were looking in, we get more for the value, so in Kentucky for example, we can get a hundred unit B, C asset in the 30 to 70 a unit range, you can't get that in an hour, you can't get that New Jersey, you can't get that in the tri-state area in New York, a lot of the numbers don't work here, so you have a very difficult time making it where you're buying on actuals in New Jersey and a lot of course of the brokers, they are trying to push you on a huge appreciation play here and that's not our model, we buy an actual, we hope we can meet these returns by increasing rents and doing other points with expenses, however our returns are still working based on the actuals that we've ran on the property, how it's actually performing today, so it's all gravy, if the property is better, we're able to get more income out of it. We’ve done a better job, we're able to cut down expenses, but we buy the properties in the areas based on how they're performing, not how they could perform and that's the biggest thing right now is we're seeing price expectations based on a Pro-forma underwriting in a Pro-forma of value, I think that's one of the first things we look at, because if you're looking at a deal if you're looking at an opportunity of a property that's for sale, the first question you want to ask is, why is the seller selling, because if they're showing you a Pro-forma of value, then you ask them the question, why aren't you guys doing that to the property.

If they're projecting rent increases based on capital improvements three to six months out, it's basically what they're anticipating the new market rents to be for those units based on the improvements, so essentially what could they rent the unit's out in the future, not yet, so if a broker or a seller hands me a Pro-forma or a or anything to that effect, what should I be asking for instead, well you'll see you want to look at the actual trailing 12 months and the actual rent roll, to make sure those numbers line up, what you'll probably see there is a higher loss to lease, line item in the financials, because that they're actually losing rent based on what they're not currently getting for those units, so the pro forma for the Pro-forma financials will show kind of what the New York near future rents will look like.

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