Finding The Best Investment Real Estate Markets Is Easier Than You Think
by | Mar 30, 2021
Multifamily syndication investments allow you to leverage the experience of professional teams who are on the ground in their particular market. Your reliance on the connections and the expertise they bring to the table opens the doors to limitless access and potential in real estate markets across the country.
You can invest in any type of asset anywhere and have a solid team working for your best interest, which can be both exhilarating and overwhelming at the same time.
Now that you know the possibilities are endless let me narrow down things again for you. I don’t want you to get lost diving down every possible rabbit hole, cross-referencing “best real estate market” lists, trying to make sense of current population trends, and perusing local news stories. Honestly, this won’t really help you draw any conclusions, plus you’ll waste a ton of time and energy.
Instead, begin by assessing your personal investing goals. Maybe you want to invest in a growing market that also provides decent cash flow. Using your goals as a basic framework, this research checklist will help narrow things down:
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Whether You Have a Competitive Advantage
Since steady job growth is indicative of a healthy local economy that’s likely attractive to new businesses, developers, and residents to the area, this is the most important metric to evaluate in each market.
Job growth is a leading indicator of population growth. The more jobs, the more residents, the more likely the area will maintain a strong tenant base. When more people are attracted to an area, housing demand increases, which drives up rent and real estate prices.
Since the population in a particular area could be affected by natural disasters, migration patterns, and more, you always want to research it after job growth.
Finding an area with long-term upward population growth trends (not a temporary bump) is vital, and a significant factor supporting that trend is job growth in the area.
These two metrics provide a complete picture of the health and future of a given market.
You want to find an area with a variety of industries supporting the local economy. Strong job growth is much less enticing if you discover that most of the area’s jobs are, say, in the tourism industry.
A recession or a negative news story could broadly impact the number of tourists and, therefore, job growth and population trends. A diversified job market is much more attractive since a hiccup in any single industry likely wouldn’t affect the area as a whole.
Beyond the top 3 factors – Job Growth, Population Growth, and Job Diversity, the next best factor to learn about has to do with the laws governing rental properties.
Rent control, for example, is great for tenants but makes it incredibly challenging for landlords to make a return on an investment in an area where costs for contractors, pest control, and property management are skyrocketing. This is one of the main reasons why my family has been diversifying our real estate outside the City of Seattle.
As an investor, you want some insight from local property managers who are intimately familiar with these laws so that you can find landlord-friendly areas.
While usually the last thing on investors’ minds, taxes can make a significant difference on the bottom line.
State income taxes and property taxes will both impact your operating budget thus, your overall return. Each state has a different tax structure, and it’s good to understand what you’d potentially be getting into so you won’t be surprised later.
Use Google Maps to check out the actual physical landscape of the area. Look for physical barriers like a body of water, a mountain range, or any other geographical features that could inhibit the area’s physical development.
As an example, coastal cities are limited by the ocean. Development can only get so close to the water, which forces them to build upward or expand into the suburbs. This drives up the value of centralized real estate, especially in a time of job and population growth.
Cost of Living
By seeking out an area where the cost of living is low, especially compared to the median income in the area, you’re more likely to experience growth. If people can afford to live in the area easily, there is room for the cost of living (i.e., rent) to rise as more jobs and people move into the area.
While the other, previously listed factors are much more important, once you’re pretty “sold” on a specific area, you may want to track a few local news stories.
It would be great to have some heads-up about new companies moving to (or away from) the area, local announcements, community developments, and anything else that would allow a sense of understanding of the local economy and the potential future of that market.
Just as with the local news, the local government is indicative of the area’s future standings. It’s a good idea to invest in areas with strong local leaders who support new initiatives, an expanding local economy, and whose vision includes making the market vibrant and welcoming.
Strong leadership from the local government is attractive to corporations, which means that job growth will continue.
Whether You Have A Competitive Advantage
There’s always the chance that you have greater insight into a particular area, more so than other investors. Maybe you have a close cousin or best friend who lives there; perhaps you went to college there or grew up there.
Any time you possess a competitive advantage, more weight should be given to that market. Local connections or a little history with a particular area can put you leaps and bounds ahead of other investors.
As an active investor and landlord, I ran into each of these criteria, learning and gaining experience the hard way. That also means I got to know my city and all the little micro-communities around me very well. However, that wasn’t as scalable as I’d initially hoped, and I knew there had to be a more time-efficient, less stressful way to own rental properties and grow wealth.
Lucky for you and me both, passive investing through real estate syndications burst onto my radar, and I learned about the advantages of leveraging a team, which allowed me to expand my investing strategy to other cities, even if I’ve never visited there.
Passive investing gives you quite the hands-off freedom while providing all the perks, but you still need to perform your own due diligence on the markets in which you’re interested in investing. Even though you’re not doing the work of choosing individual properties, hiring contractors, or finding tenants, going through the checklist above will help you ensure the investing choices you’re about to make are in alignment with your personal investing and financial goals.