What data and small business systems can help real estate investors pinpoint the best markets for their company’s to get into?
Some real estate investors report they find it challenging to find deals that meet their criteria. Others just want to ensure they are investing in the very best markets for profit, growth, and sustainability. So how do you find great matches in locations that are affordable and promising, and have the data to back it up?
Finding the Right States to Invest in
Here is a little trade secret; start looking at states before individual markets. Can you find states that are friendlier to your type of investing? Do you know which states may be friendlier for wholesalers? Do you know which states have laws and legal systems that favor landlords versus tenants? How about foreclosing if you’ll be making private mortgage loans? Which states may put more or less money in your pocket when you account for property taxes, operating costs, and state income taxes? There can be some pretty substantial differences.
Finding the Best U.S. Cities for Real Estate Investing
Employment and population growth are two important statistics to take into consideration when looking at a city to invest in. A declining population can be really scary for investors. It can lead to high levels of vacant properties, and then tip the scales for buyers and sellers. The U.S. Census publishes a variety of reports on these factors, which are available to the public. It’s also interesting to look at historical population trends. Has the area consistently grown in population since being established? Even during downturns? Is current growth warranted, and likely to be sustainable?
Jobs have a lot to do with renting and buying power, maintaining transaction volume, and population growth. Some ways to get ahead of this curve are to look where the jobs are going. Tracking announcements from major employers can be a good indicator. Getting even further ahead of the curve, tracking the roll of higher speed internet like Google Fiber can be a strong indicator of where businesses and jobs are headed.
Insight at the Community Level
All real estate is local. That means that not all deals in a given city are good or bad. Places like San Francisco, Washington D.C., New York, and Los Angeles are huge. There are many properties in these markets which are way out of touch for the average buyer, and may not make sense for most investors. But then there may also be pockets of opportunity. It is important to hone in, down to the zip code and community level.
Some ways to look deeper than general stats in the media include looking at how many new Starbucks are going in, if new Walmart stores are being built or how much empty lease space they have, and how many local co-working spaces and startups there are. The volume of local development and community re-investment is a big deal. Crime figures can be a big tell as to the direction of a market, but these numbers are easily skewed. If there is one single number to watch, it may be affordability. Affordability indicates how much action is possible, and how much growth potential there is. Again, make sure you are looking at affordability in context. A $10,000 property in Detroit may still be unaffordable for some locals when all the other costs are factored in. Whereas a $1M property may actually be very cheap and affordable in some circles.
Once honed in on the micro level, it can pay to look at specific property types. There is an increasing spread between different property types in many areas. New versus old, small homes in aged neighborhoods versus modern condos, and even urban townhomes versus luxury ranches and retreats. What’s trending in your target area?
It’s also wise to look at how partners and vendors will play their part in the locations you are looking at investing in. How do your partners feel about the destination? Are there wholesalers serving up deals for you? How intense is the competition? Is there enough labor for effective rehabbing? Can you find investor-friendly Realtors, title companies, and attorneys locally?