by Joe Firmin 3 ½ Minute Read
Once you decide to invest outside your local area, the possibilities are limitless. This can be exhilarating and overwhelming at the same time.
A tidal wave of thoughts may come flooding in immediately. Should you consider a bustling city or a smaller town? You may think of a vacation town you loved and the cool buildings you saw there.
You could dive down every possible rabbit hole, cross-referencing “best real estate market” lists, trying to make sense of current population trends, and even looking up news local to areas you’d be interested in. Honestly though… this won’t really help you draw any conclusions, plus you’ll waste a ton of time and energy.
Instead, begin by assessing your personal investing goals. Maybe you want to invest in a growing market that also provides decent cash flow. Using that basic framework, this research checklist will help narrow things down, FOR SURE:
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Whether You Have an Unfair Advantage
Since steady job growth is a clear sign of a healthy local economy that’s likely to attract 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 resident 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.
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 (ouch in 2020 especially).
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. Just as diversity is important in your investments, it plays in this analysis as well; it is pure risk mitigation.
After those 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 residents 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. If these costs, and inflation, are going up and rent is staying flat – where does that leave the landlord?
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.
Understanding landlord/tenant laws makes sense, but why should investors have taxes on the mind? Well, 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 (and city) has a different tax structure and rates and it’s good to understand what you’d potentially be getting into so you won’t be surprised later. If you’d like more info on taxes, check out this TFC post.
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. Geography is important to attracting people as well and can play into the overall aesthetic and desirability of a location.
Cost of Living
While geography can be sexy, it can also impact the costs in the area. 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 (e.g., rent) to rise as more jobs and people move into the area.
Some of the costs can come out in the 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. These stories can be highly beneficial to understanding the, say for example – the cost of living or the local government laws.
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.
Just as with the local news, the local government is prime for getting the low down 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 in the local government that is friendly to business is attractive to corporations, which means that job growth will continue.
Whether You Have an Unfair 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 an unfair 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. This is why at True Freedom Capital we started to focus on Watertown, NY and Augusta, GA – both areas where Chris and I (Joe) grew up respectively and have more local knowledge on.
What About Investing Passively In a Real Estate Syndication?
As a passive investor, you’ll focus on finding a strong sponsor first (like True Freedom Capital). Once we let you know about potential deals, you can either trust the sponsor has done this research or use these 10 factors, in combination with your personal criteria and goals, to conduct your own research while avoiding being overwhelmed.
If you’re interested in learning more about investing in value-add investments and becoming a passive investor in real estate syndications, consider joining the Freedom Network. It’s absolutely free to join with no commitment necessary, seriously. If you don’t join, we won’t be able to send you opportunities (sorry, SEC rules). So join today!