The great thing about investing in multifamily real estate syndications is that you have an experienced team behind you. If you’re new to syndications, having that ‘boots on the ground’ support is invaluable. Partnering with a team will allow you to find the real estate markets that will net you the best return on your investment.
Your choice about where to invest is virtually unlimited. Having endless possibilities sounds great, but the sheer volume of available options can easily result in confusion.
You could end up wasting hours of your precious time researching the best real estate markets, trying to figure out if a city’s population is growing and what the job prospects look like. In all honesty, going it alone will drain your time and energy, and likely just leave you feeling overwhelmed rather than clarifying anything.
Before you get caught up in the temptation to go full steam ahead into pointless Googling, step back and reassess your personal investing goals. Think about what you want from your investment — are you prioritizing cash flow from a growing market, or do you have an eye on asset appreciation in the future?
We use a simple checklist-based framework to locate cities that are ripe for investment:
- Growing Job Possibilities
- Upward Population Growth
- Variety of Local Industries
- Laws Governing Rentals
- State Taxes
- Geographical Features
- Comparative Cost of Living
- Understanding the Local Economy
- Local Government Leadership
- Personal Insight
Growing Job Possibilities
Steady job growth is indicative of a healthy local economy, and will likely attract new businesses, developers, and residents to the area. The job market trend is the most important metric to evaluate in each market.
Job growth is also 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.
Upward 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.
Variety of Local Industries
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.
Laws Governing Rentals
Beyond the top 3 factors – Growing Job Possibilities, Upward Population Growth, and Variety of Local Industries, 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.
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.
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.
Comparative 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.
Understanding the Local Economy
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.
Local Government Leadership
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.
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.
Do Your Due Diligence
When you invest in a real estate syndication, you aren’t personally choosing the asset, but that doesn’t get you off the hook completely. You should still plan on conducting your own due diligence.
Be sure to do some research and properly vet every potential investment opportunity. Use our framework to better understand the key areas to look for in a potential real estate market. Doing some work upfront will help you ensure you meet your investment goals.