Investing in a money-making market is KEY to ensuring that your investment is cash-flowing for a long period of time.
Whether or not your property will make money has almost everything to do with its location. So how do you find the right market and submarket that will allow you to profit with your real estate investments? Here are 7 factors that I look for before I invest to make sure it'll be a worthy investment:
Remember when you have rental property, you are a landlord & you are a business. Laws & policies that favor landlords & businesses will make a big difference in your ability to profit.
The next factor in a good investment property market is to have a low-to-medium cost of housing.
The cost of housing is important because (a) it will determine your ease in being able to enter the market (the more expensive a market, the harder it will be for you to purchase there), and (b) you will have to be able to charge a lot more for rent to get back your return on investment.
Jobs bring people, and people need properties for housing and business. That means more tenants for you and a greater likelihood that your property will make money. When these metrics are growing, this is evidence of a strong market.
Avoid one-factory or one-industry towns. When the business or industry suffers the whole town can die. The more businesses and industry diversity you have, the more resilient the market will be.
You want multiple employers and a market with multiple industries. Sometimes entire industries can be taken down, and you want to invest in an area with an economy that can withstand this kind of blow.
For example, some coal mining areas in Appalachia may have had several different mining companies operating locally, but that was the only industry. The towns may have survived one coal company shutting down, but when the coal industry as a whole started hurting, it took the whole economy down.
We are also seeing this challenge now with towns that are almost exclusively about hospitality and entertainment. With these industries largely sidelined due to Covid, markets like Las Vegas and Orlando are really hurting.
Invest in markets that you and/or your team members know really well. You can get a lot of information online, but it’s not the same as having an intimate familiarity with the market you’re investing in.
When you’re familiar with an area and interact with the people and business entities within it, you may find out about projects or employers that are “likely” or “about to” make the move before it’s public, and be able to purchase the right property in the right place.
Take a trip to the property market and set up appointments with brokers, property managers, and city officials. Ask them what they’re seeing in the market, where employers are coming, where people are moving, what’s the place in town that’s up and coming.
Not all neighborhoods in a city are created equal for investment purposes. You have to find the right neighborhood/submarket to meet your investment goals. There are A, B, C, and D-Class Neighborhoods (these classes speak to the socio-economics of the areas). You need to invest in the right class near the right amenities for your investment property.
When people are looking for where to rent they consider things like:
These are things you should consider too. Look very carefully at the different neighborhoods and even different areas within neighborhoods. Sometimes being on or off a particular street can make all the difference.
There are four market cycles:
Rising, Booming, Downturning, and Stabilized. Understand which market cycle is best for the asset class you're investing in, and find a market and submarket which are a fit.
The ideal location in which to invest is usually a market in an upturn -- a “rising” market. This is generally the best way to be able to find a deal that will quickly gain in equity and give you the best returns.
These are the 7 factors you should look for to make a worthy investment. Are there any of these that you hadn't yet considered?
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“Monick Halm opened my eyes to all the different ways of investing in real estate. I am now invested passively in 2 syndications and a performing note, with $2500 a month passive income, and now I don’t have any lazy money sitting in a savings account earning 0.01%.” — Bernardette Williams