In multifamily, brokers will sometimes send you a listing that is out of your key market(s) and you have to be able to analyze the area and know whether the property is in a zone worth your investment. On the other hand, you may be trying to find a new market to invest in, or one to make your “key market” to give all your focus. We all know the age-old phrase...LOCATION, LOCATION, LOCATION...but there’s a bit more to it than that. Luckily, market analysis can be broken into sectors that are pretty easy to research. This post will break down some key factors in deciding if a market is a “no” or a “go” before you get down to the nitty-gritty numbers in underwriting a property. This is a crucial qualification process that you cannot afford to overlook. 

The first thing you will want to figure out is population growth. For this, we like to use a popular formula used by many industry professionals. Ideally, you want growth of 25% for cities whose population is 250k-one million, 18% for cities over one million, 13.75% for cities over two million, and 36% growth for cities under a quarter-million - all between the years of 2000-2020. Now that we are post-pandemic, it is also important to look at what has happened in the last two years. Are people flocking to the market or fleeing? The pandemic hit some areas harder than others. It has helped some to flourish (looking at areas of Texas, Florida, and Georgia) and some cities took a blow.

The next factor to consider is median household income and median house or condo value in the area. We like to look for a growth of 38% for the median household income and a 50% growth in the median house or condo value in the last ten years. This will also be helpful when you evaluate rent prices. 

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”

— Theodore Roosevelt

Thirdly, you will want to look at the crime rate for an area. The website www.spotcrime.com will allow you to get real-time data on the criminal activity reported in any neighborhood or area. It is a fantastic site to use especially if you have a specific property in question because you can pinpoint exact locations and look at the surrounding activity. The website www.city-data.com is also helpful in allowing you to view the most recent crime numbers. Ideally, you want the score to be below 500. 

If your area in consideration is still looking prime after analyzing these 4 metrics, scope the job growth, unemployment rate, and poverty level. Whether I am completely unfamiliar with an area or not, I always like to give it a basic google search to see whatever comes up. It could show interesting things like “XYZ Planning to Move Their Corporate Headquarters to X-Town” or “Why X-Town is the New Hot Spot” - any kinds of articles that may illuminate what is to come for a city or town. Study the 12-month job growth percentage, looking for numbers above 2% annualized job growth (1.5% for cities over one million) using www.deptofnumbers.com/employment/metros/

The next facet of this is the unemployment rate. These numbers are going to be askew (majorly) because of pandemic-related layoffs, but you can get a rough idea from the 2019 numbers and the more recent ones. The local neighborhood of the property should have an unemployment rate no more than 2% higher than the city’s unemployment rate. Delving into the poverty level is massively important. The poverty level should be under 20% and ideally under 15%.

There is no magic lens to foresee whether or not a property will perform well. So much of that comes down to the other variables such as the deal sponsors, property management, the class of the asset, the quality of the tenants, and ultimately: the numbers. Driving the area and seeing the property for yourself is invaluable, but not always possible. Furthermore, it might not be worth the drive or flight if any of the above-noted metrics are unsatisfactory. We always send a member from our team to do a tour and visit the property if the market scores well and if the numbers look promising. With the assistance of some of these formulated tactics, and the information readily available to you through the internet, remotely researching and choosing a prime market is now easier than ever.

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Thanks for reading,