More than 300 urban areas in the U.S. have populations above 100,000.
How do you know what markets are thriving and which cities are declining?
Don't select a market or part of town because it's convenient for you. You want to start your due diligence to find an up-and-coming city or part of town to reduce your risk and maximize your investment.
To minimize your risk, it starts with research to make an educated decision.
Here are 10 things to consider when Selecting A Market
1. Define Your Investment Goals:
Start by defining your investment objectives. Are you looking for a long-term hold or are you flipping properties over a short time period? Your goals will influence the type of properties and locations you should consider.
2. Research Market Trends:
Study real estate market trends and forecasts for potential cities. Look for cities that have demonstrated consistent growth in property values and rental income. There are free tools to help you research market trends.
3. Location Analysis:
Once you've decided on a city to invest in, it's time to dive deeper into the neighborhoods and surrounding areas. Look for areas with low crime rates, good schools, access to transportation, and proximity to amenities like shopping centers, parks, and healthcare facilities.
4. Economic Factors:
Look for cities with diverse industries, low unemployment rates, and a growing job market. Strong economic fundamentals can contribute to the demand for housing. The local chamber of commerce is a great reseouce to learn about what businesses are expanding and what companies are moving in to the area.
5. Demographics:
Analyze population growth, age groups, and income levels. A growing population and a strong job market can drive housing demand.
6. Property Type and Investment Strategy:
Decide on the type of asset you want to invest in (e.g., single-family homes, multifamily units, commercial real estate). In multifamily you want to know what unit layouts perform the best for the market (e.g. 1 bed / 1 bath, 2 bed / 1 bath, 3 bed / 2 bath).
7. Risk Assessment:
Assess the level of risk associated with investing in a particular city. Consider factors like climate-related risks, potential for natural disasters, and any unique challenges specific to the region. This will impact your insurance rates and your maintenance costs.
8. Market Conditions and Competition:
Evaluate the current real estate market conditions, including the level of competition of existing and new buildings coming online, the vacancy, and the absorption rates. Texas A&M has a great tool to see how many multifamily permits have been applied for cities across the U.S.
9. Networking and Local Expertise:
Connect with local real estate agents, property managers, and investors. Local experts can provide valuable insights and help you navigate the local market effectively. Flippers are a great resource to ask what areas of town they are seeing the most growth.
10. Visit the City:
This is a must. Visit the city to get a firsthand feel of the area and its neighborhoods. Google Maps and other tools can give you great insight, but you can't see the nuances of the neighborhoods.
Bonus Tips:
Local Real Estate Laws and Regulations:
Familiarize yourself with local real estate laws, zoning regulations, and tax policies. These can significantly impact your investment's profitability and ease of management.
Exit Strategy:
Always have an exit strategy in mind. Depending on your business plan, you want to be in a market where the city will grow alongside your business plan.
Conclusion
When you are starting, focus on one or two markets. Focusing on a select market will help you make better decisions on where you want to be and how to underwrite a deal.
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