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316: How to Find Hot New Markets

June 7, 2019bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 316: HOW TO FIND HOT NEW MARKETS

In today’s sellers market, finding good deals has become more and more difficult for real estate investors. Nonetheless, smart investors are still finding new markets that not only have great deals but are poised for long-term growth. In this podcast episode, Bill shares some of the strategies savvy investors are using to find those great markets for both short and long-term gains.

When looking for hot new markets, where does one even begin? That’s a very valid question. When we’re looking for HOT NEW markets, what do we mean:

Hot – Means a market that is poised to produce great results for investors.
- You can buy properties at good price
- That will increase in value right away
- Room to increase rents continually over time
New – A market that most people don’t know of yet.
- It is ABOUT TO BECOME a hot market or HAS JUST BEGUN to become a hot market

Why Is Conducting Research in Real Estate Important?

Whether you’re new to real estate or whether you’re experienced, learning how to research real estate markets is a crucial skill. If you’ve listened to our podcast or read our blog articles, you’ll know that we put a lot of emphasis on finding the right market to invest in and finding emerging markets. You’ll notice that “research the market” is among our most common tips for real estate investors.

I tried avoiding the following, but I can’t: Location, location, location! and Relationships! Relationships! Relationships!

The reason we always focus on location is that it can be a determinant of important real estate market indicators. Location can also often be an indication of the potential of your investment property’s success. The best places to invest in real estate are typically growing cities with profitable neighborhoods where your investment property will prosper.

While location is key, it’s not always everything. More and more real estate investors are looking into areas that have the potential for improvement, and/or are up and coming, but not necessarily thriving at the moment. It’s good to learn to identify those markets, especially with many neighborhoods being gentrified across the nation’s markets, creating new investment opportunities.

Learning how to research real estate markets can make the next stages of real estate investing (managing and growing) much easier. The bulk of the work lies in research and planning for your investment. T hat is not to say that the execution phase is a walk in the park, but being well researched definitely makes for an “easier walk.”

So what information should you be looking for when researching the market? And what resources are available out there to help you with your research?

Let’s look at the basics first

Monitor Key Metrics

When learning how to research real estate markets, you’ve got to look at both the macro and the micro levels – the macro being the general market and micro being specific neighborhoods with investment properties for sale. Usually, I would advise real estate investors to begin with the macro (the broader real estate market analysis) and then move on to the micro level (neighborhood analysis).

The first step then of how to research real estate markets is to investigate the city where you wish to buy an investment property to rent out.

You should be monitoring key metrics on a regular basis.

Go to Census.gov
- They monitor all kinds of key growth indicators
  - Population growth – KEY METRIC
  - Unemployment rate
  - Migration patterns
- Population Growth
  - Look up the cities (over 50K people) that are growing the fastest
    - This year
    - Last 3 years
    - Last 5 years
    - Lat 10 years
Look at other people’s top growth market lists
- Best Cities to Invest
- Forbes Lists
- Realtor.com, Zillow.com lists
- Then begin researching the top cities
  - Is it still the top city?
  - Is it old or inaccurate info?

Buyer’s vs, Sellers’ Market

One basic, yet crucial, question when researching real estate markets is “Is it a buyer’s market or a seller’s market?” You can identify the state of a real estate market by looking at the housing inventory, days on market, and comparing average listing prices to sale prices.

As of the date of this recording, most real estate markets in the US are seller’s markets due to the rising demand and the rather limited supply of properties for sale. This means that conditions are more favorable for sellers.

As a real estate investor, you want to be looking into markets that have favorable buying conditions, also known as buyer’s markets. It’s also not impossible to invest in a seller’s market, but you do have to dig a little harder and be timely with your decisions.

Study the Demographics, the Economy, and the Job Market

To identify a profitable real estate market, you will also have to study the demographics, the overall economy, and the job market of the city. Knowing these facts will help you figure out whether or not a specific city is a sound investment location.

Looking into economic elements is important because it can aid an investor in analyzing the rental market. A city with a strong economy and a high-demand job market draws in young people and millennials alike. This can increase the demand for rental property.

Let’s take Boston as an example – a city thriving by all means. The job market is large, the overall economy exhibits good indicators, and the population of the city has a median age of 31. It’s no wonder that the Boston real estate market is a good choice for buying investment property in 2019.

The ROI Metrics of the City

Choosing a city to invest in depends on several aspects, the most notable is – numbers. When analyzing a city’s real estate market, you should be looking into indicators like average rental income, average CoC return, and average median home price. General city data is very important in the first stages of figuring out how to research real estate markets.

The Old Dawg’s REI Network website, blog and podcast is a real estate resource that can help you in your research for city data. Our blogs on real estate markets offer a comprehensive breakdown of general city data as well as top neighborhoods to invest in. In addition to this, you’ll get key info on whether or not the city is a seller’s or buyer’s market as well as economic, job, and population trends. We’ll also post our own Top 10 lists of the best investment markets we identify.

Neighborhood Analysis

After you’ve conducted real estate market analysis, it’s time to move on to neighborhood analysis.

Check Out the Neighborhood Amenities

A good neighborhood for buying investment property is one with available amenities such as access to good roads, access to transportation, and proximity to good schools. You can learn more about this part of how to research real estate markets by reading: What Kind of Neighborhood Has the Best Investment Properties?

Again, Run the Numbers

A neighborhood analysis isn’t complete until you run the numbers. You’ll want to find real estate data on:

Median Listing Price
Rental Income
Cash on Cash Return
Occupancy Rate

Key Steps

Research Key Metrics

Look at population trends
Look at the job data
1. Low unemployment?
2. Job Creation?
3. Salaries going up?

Become a Market Expert

You have to really know what is happening in the market you are in
You need to be able to answer these questions:
- Why are people migrating to this area?
- Where are they migrating from?
- What types of jobs are people getting? Temporary? Permanent?
You need to understand the other markets around
- What are they offering?
- Their rents?
Know what you need to offer to maximize your rents
Read local news and business articles
Contact Chamber of Commerce
Are new businesses coming into the area
City plans for growth, new business incentives
History of CAP rates or 3, 5 10 years

Look at Other People’s Research

Are major upscale franchises moving into the area?
- Starbucks
- Home Depot
- Whole Foods
- Panera Bread
Get on broker’s lists
- Have OMs (Offering Memorandums announcing apartments for sale in your market) sent to you
  - Tap into the research sections at the back of the OMs for great market data compiled by the lage international commercial real estate brokerages

Other Factors

Good commuter markets
- Are people willing to drive there – no more than an hour away
Look at the hottest residential housing markets in the country
- Where are house prices going up?
- Are more people buying more houses in a market?
- What level of homes are being purchased (between $200,000-350,000 price ranges)?
Talk With Local Experts
- Try to understand why people are moving into these markets
  - Call brokers
  - Call the Chamber of Commerce
  - Ask, “What is the local government doing to attract people there?”
    - Is there job growth?
    - Major companies moving in?

The Takeaway?

Purchase carefully
Do not be aggressive in your numbers
Always error on the conservative
Don’t let the brokers push you into something
Do your homework
Visit the asset
Walk through the neighborhoods
Walk through other apartments in the neighborhood and find out what occupancies and vacancies they have
Definitely read about the “yield cycle” becoming inverted. This will help you understand where we are and where we’re going
He is continuing to buy smaller apartments and gaining significant market knowledge of those areas. By positioning themselves as experts in those areas they are poised to acquire larger properties in those markets as well
Find and go to emerging markets. Learn a few markets well and grow in those markets
Dig deep into those markets
Get a foothold in those markets
Don’t go shotgun around the US in many markets!
Be an expert in a few and flourish there
The bigger players will be more likely to invest in you if they see you have expertise in a key market

Once you can find and identify a new hot market, you’re on your way to building a valuable investment portfolio for the short and long term. Monitoring and having access to information is very important for today’s real estate investor. And while conducting real estate market research can be challenging, and time-consuming, it is well worth it in the long run.

Some Great Old Dawg Podcasts & Articles on Finding Hot Markets

IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay, iHeartRADIO and Spotify and Subscribe, Rate & Review our podcast. This will greatly help in sharing this podcast with others seeking to learn real estate investing to achieve a successful retirement.

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com

bmanassero

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