When it comes to multi-family syndication investments, you get to take advantage of the team’s professional expertise within these markets. This team of experts is not just located in one area but encompasses many different growing populations and is aware of market trends in their locations. When you start to grasp the endless possibilities available with real estate syndications, it can be both exciting and overwhelming.
You could do all the research yourself, taking days, weeks, or even months, googling population trends, “the best real estate markets,” or even traveling to see the property in person. The reality is, however, that all the data and research might give you some of the answers you are looking for but not all. Would this have been worth all the time and effort you just exhausted?
A better way to spend your time and effort would be first to assess your investment goals. Are you looking for an investment that yields a decent cash flow in a growing market? That is a question that will help you clarify what you’re actually desiring.
Keep that question in mind while you go through this research checklist:
- 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, the demand for housing increases, which drives up rent and real estate prices.
Since the population in a certain 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 key, and a major factor supporting that trend is job growth in the area.
These two metrics provide a full 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 jobs in the area are, say, in the tourism industry.
A recession or a negative news story could largely impact the number of tourists and, therefore, job growth and the population trend. 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.
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 huge difference to 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. 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 in comparison 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 certain 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 certain area, more so than other investors. Maybe you have a close cousin or best friend who lives there, maybe you went to college there, or you 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.
So, Have You Found Your Ideal Market?
After going through the checklist, do you have an area you’re interested in? If so, it’s time to start exploring the area and learn about the community. Focus on learning about any new developments or upcoming events that might create momentum in the real estate market.
You might still be undecided, and that’s okay. You can still research general regions that are experiencing growth, and hopefully, you’ve found some great leads to help you narrow your focus.
We know busy professionals like you rarely have the time or patience to take on such a big, scary endeavor like finding the perfect, growth-oriented commercial real estate market. So, at Arctos Capital, we do all the upfront vetting of markets, team members, sponsors, and operators for you.
When you’re presented with an investment opportunity from inside the Arctos Investors Club, you can rest assured that the deal has already passed our rigorous underwriting scenarios and that the people involved have a long track record of success.
One thing to remember, as a passive investor, you probably won’t be the one to choose the specific properties, but you still need to ensure that the markets you invest in will meet your investment goals.