When investing in multifamily syndications, you are leveraging the experience of professional teams who are often on the ground in various markets, meaning YOU don’t have to be the “expert” or know everything about commercial real estate across the country. Because of this, the possibilities as to the markets you could invest in are limitless, which can be both exhilarating and overwhelming at the same time.
You could dive down every possible rabbit hole, cross-referencing “best real estate market” lists, trying to make sense of current population trends, and even looking up news local to areas in which you’d be interested. Honestly, I’m going to stop you right here before you start because this won’t help you draw any conclusions, plus you’ll waste a ton of time and energy.
Instead, begin by assessing your personal investing goals. Success, the way you define it, can only be achieved by meeting your expectations, which means you have to decide what “investment success” means to you. Maybe you want cash flow, or perhaps you’re not so worried about cash flow right now because you’re working full time, but you’re interested in long-term gains.
Once you have identified your goals, you can start researching markets and identifying which investment opportunities align. Using your unique desires as a basic framework, use this 10-step checklist to 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
First up on the list, and we believe most important, is job growth in your investment area. Since steady job growth is indicative of a healthy local economy that’s likely attractive to new businesses, developers, and residents to the locale, 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 solid tenant base. When more people are attracted to an area, the demand for housing 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 somewhat intertwined metrics provide a complete picture of the health and future of a given market.
Once you get familiar with the job and population growth in the areas of your potential deals, your eyes should turn toward the number of diverse opportunities for employment in the area.
The strongest local economies will exhibit a wide range of industries, professions, and a good mix of service providers and product-based employers. Strong job growth is much less enticing if you discover that most of the jobs in the area are, say, in the tourism industry.
A recession or a negative news story could broadly impact the number of tourists, 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 are the rental properties laws.
Rent control, for example, is excellent 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.
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 physical development of the area.
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 and 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 in comparison to the median income in the area, you’re more likely to experience growth. If people can readily afford to live in the area, 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 particular 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 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 specific area, more so than other investors. Maybe you have a close cousin or best friend who lives there. It’s even possible you went to college there, or you grew up there.
If you’re like us, maybe you were stationed there or traveled there for a convention or seminar. That’s what happened several years back to Warren and me. He was stationed in California, and I went back and forth to Texas, attending real estate conventions and learning about syndications. Who knew he’d retire and we’d move to Texas just a few years later!
Any time you possess a competitive advantage, you might consider giving that market more weight. Local connections or a little history with a particular area can put you leaps and bounds ahead of other investors.
How To Find And Vet The Best Real Estate Markets
As a passive investor, even though you’re not doing the work of choosing individual properties, managing them, or any other landlord-like duties, we highly recommend you conduct your own due diligence on the markets in which you are interested.
Your “work” toward creating great returns aligned with your investing goals is upfront with real estate syndications. Your future self and anyone potentially impacted by the legacy you build is relying on you to find markets that produce the cash flow, appreciation, or both in support of your goals. The best way to find those is by exploring these ten steps.
You’re invited to join the Starboard Equity Club today, so we can explore all of this together and help you find that aligned investment deal. See our past deal details, get to know other investors on this path, and be the first to know about this year’s upcoming syndications.