Hey there,
Deciding where to invest is one of the most critical decisions you’ll make as you get started in real estate. This week I’ll share the 4 steps to select your market.
I agonized over this for far too long when I was starting out. Should I buy something close to home? Maybe where we vacation? What about that town everyone’s raving about on TikTok?
Truth is, the most important thing is just getting started. Your learning will accelerate when you have skin in the game and time in the market beats timing the market all day.
However, after evaluating hundreds of deals across the country and spending the last 3 years soaking up everything I could from books and mentors, there are easy steps you can take today to select the right market.
Here they are…
Step 1: Determine your focus
There are so many ways you can make money with real estate…
Fix and flip homes
Wholesaling
Land development
Large multi family
Townhome & single family rentals
Real estate investment trusts
Deal syndication
Creative financing
Short term rentals
Selling as a real estate agent
And the list goes on… it’s hard to decide what to focus on with so much information out there. Let me make it easy for you.
When you’re growing as a 9-5 employee, time is a major factor. You want to find investments that have good returns and scale with a low time investment.
I suggest you start with something more straightforward, get hands-on experience, and grow from there.
Simple townhome and single family rentals
Small multi family (under 5 units)
Syndicated deals with an experienced mentor/professional
The rest will come.
Step 2: Identify 10 potentials
Now that you have focus, you need to build a list of potential markets.
First on your list is your home city. Don’t worry, if it’s not a good fit, you’ll cut it, this is just to get you started.
Next, use Google and ChatGPT to fill in the rest. You can use prompts like “top real estate rental markets in the US” or “rank the top real estate rental markets based on my goals.”
Every list you find will be slightly different based on what prompts you give but play around with the prompts, read the articles, and start adding the cities that keep showing up.
You can also find and get a high level understanding from these reports:
Zillow Annual Consumer House Trends Reports
Marcus & Millichap Annual US Multifamily Investment Forecast
CBRE Biannual Cap Rate Survey
Integra Realty Resources (IRR) Annual Viewpoint Commercial Real Estate Trends Report
Step 3: Analyze & understand
Now that you have your 10 potential markets, you’ll want to do a detailed demographic and economic evaluation of each.
Economy
Unemployment, jobs, and employers have a major impact on demand for your rentals. You’ll want to have a good understanding of how your markets rank with this.
Here are some questions you’ll answer:
What’s the unemployment change over a five-year period?
How diversified is the job market?
Who are the top 10 employers in the market?
You can find a lot of this info at Census.gov website under the “Selected Economic Characteristics” data table.
2. Demographics
Population growth and age will tell you if you can expect increasing demand for housing and what the hottest property types for that market are.
What is the population growth for the last 5 years?
What is the population change for the different age ranges?
Population data can be found on the Census.gov website. The city data is located in the “Annual Population Estimates” data table.
3. Trends
What is the supply and demand for these markets?
Rental vacancy rates over a five-year period
Average monthly rent ranges for different home and apartment sizes
Are there any new developments that could affect supply/demand? E.g. Disneyland is building a theme park in this city next year
Decreasing vacancy rate is ideal and will indicate that rental supply is decreasing in this market.
Vacancy data can be found on the Census.gov website under the “Selected Housing Characteristics.” The building permit data can also be found on the Census.gov website.
Step 4: Pick your top 2
Find your top 2 markets by ranking each market on a scale of 1-10 using the questions below and add up the scores. The market with the lowest ranking is the best.
Remember your focus, especially when markets seem to rank similarly.
Unemployment: Has the unemployment rate increased or decreased over the last five years? Is it currently trending upwards or downwards?
Population: Has the market population increased or decreased over the last five years? Age: What age range has the largest population increase? Largest decrease? Based on the largest increasing and decreasing age range populations, is your target investment type in demand?
Jobs: Which industry employs the largest portion of the population? Does that percentage exceed 25%?
Employers: Does one company employ a large percentage of the population? Are the top employers in similar or differing industries?
Supply and demand: Is the vacancy rate for your focus area increasing or decreasing? Is it higher or lower than five years ago? Are there any developments that would increase demand?
So there you have it - the 4 steps to select your market! Let me know what you think!