With sales inventory shrinking and the lack of affordable real estate, knowing how to pick your market is critical. I’ll share the six things you must know to select a winning market.
How to decide which market to buy in is a critical part of the real estate investment process.
Boston? Phoenix? Miami? Houston? San Diego? How do you choose?
After twenty-five years of learning, studying, researching, shopping and walking markets I’ve organized the data you need to know down into six classifications.
I’ll give you a brief overview of these classifications and why they are important to your investment process.
I shop many different markets so I can see what will happen in the future to the markets I’m invested in.
The data you study is going to tell you where to buy and the type of property (size, classification, location, etc.) to buy.
Think of this, one-third of all rental stock in the U.S. is single-family homes. These deals don’t produce enough revenue on their own and will be the first to be victims of any market downturn or adjustment.
Multi-family real estate is the better deal. Storage units have been overbuilt, retail is susceptible to downsizing and are subject to much higher volatility.
16-32 units in the price range of $1.2-$1.6 million with 30% down is the kind of deal you want to be looking for. Again, this size has the power of scale and will allow you to weather a temporary downturn in appreciation, help you with vacancies, give you an edge on amenities to attract renters and gives you wiggle room on improvements to increase property value.
Here’s the six things you must know to select a winning market.
Are the units affordable in the market? Determine how they compare to other rents in the market. Do you have room to raise them if you improve the property? A rule of thumb is three to one or four to one. This means if rent costs $1,000, people need to be earning $3,000 per month or if it’s four to one, they must earn $4,000.
Does the market have a healthy economy? Are there companies coming into the market and creating jobs? What kind of companies and what kind of jobs?
Are people moving into the market or out of the market? What are the ages of people moving? Where are they moving from? Why are they moving? Jobs? Retirement? These are huge differences and these renters are looking for very different things.
What type of inventory and how much of it is present. Be careful if there is a current shortage of units. Are they a lot of builders building so you’ll find yourself in a glut of multifamily when you are looking to sell?
5. EXIT STRATEGY
You should know who you want to sell to and who you buyer is when you are ready to sell. You should know this when you buy. Determine where the market will be and what your leverage and appreciation will be when you are planning on exiting.
Determine the gap between buying a house and rentals in the market. Is housing affordable? Will people want to buy a house or rent?
You can lose money in real estate so you need to do your homework. Learn more about investing in multi-family real estate so you can become an informed investor – no matter if it’s your first deal or fiftieth.
Not comfortable going it alone? You can invest with Grant Cardone through Cardone Capital, join his Real Estate Investors Club, sign up for his Real Estate Program or pick up his book, “How To Create Wealth Investing In Real Estate”. https://cardonecapital.com/resources/
GC, Cardone Capital.