When you invest in multifamily syndications, you’re not just investing in a property, you’re also investing in the professional teams that manage it. They have a wealth of knowledge about different markets, and with their help, the possibilities for where you can invest are limitless.
It can be exciting, but also overwhelming to decide which markets to focus on.
Instead of spending countless hours researching every potential market, it’s important to start by identifying your personal investing goals.
For example, maybe you want to invest in a growing market that provides steady cash flow. Once you have a clear understanding of what you’re looking for, you can use this research checklist to help you find the right market to invest in:
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Taxes
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Whether You Have a Competitive Advantage
Job Growth
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.
Population Growth
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.
Job Diversity
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 the 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.
Landlord/Tenant Laws
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 you can find landlord-friendly areas.
Taxes
While usually the last thing on investors’ minds, taxes can make a huge 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.
Geographic Features
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.
Local News
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 potential future of that market.
Local Government
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 who’s 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.
Conclusion
As a passive investor, even though you’re not doing the work of choosing individual properties, you must still do your own due diligence on the markets you’re investing in. That way, you can ensure that those markets are solid markets that meet your investing goals.
Next Steps
Here at Legacy Creek Investments, we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits.
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