One of the most beneficial aspects of our real estate investing journey has always been the support of the ‘boots on the ground’ professionals in various markets.
We love exploring markets and evaluating what’s around and where might be the best home for our investments. So when George was helping his father invest for retirement, or Andrew wanted to buy a property to rent out when he left the Marine Corps, the most important thing for us was to invest in optimum real estate opportunities.
The problem with unlimited choice is that it can lead to overwhelm, and you can get stuck in the analysis paralysis trap.
It is tempting to waste far too much time and energy researching the “optimum real estate market” until you go cross-eyed from reading reports, analyzing data, and even poring over local listings in markets you’re attracted to.
None of this helps you make a decision — it just confuses you.
The best way to make an informed decision is to reverse engineer the process. Start with defining your personal investing goals, then get granular with this research checklist:
- Job Opportunities
- A Growing Population
- Employment Diversity
- Laws Governing Rental Properties
- Tax Implications
- Physical Landscape
- Cost of Living
- Local Economy and Events
- Local Government Initiatives
- Your Local Knowledge
The most crucial factor in evaluating a local economy is whether it provides varied and adequate job opportunities. If the job market is booming, the population will likely grow and attract new businesses and residents to the area.
When you’re considering investing in a market, your best choices are healthy in terms of job opportunities. After all, good job options will bring more and more residents looking to rent homes in the area, which will, in turn, lead to an increase in rental rates to match demand.
A Growing Population
Since the population in a particular 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 critical, and a significant factor supporting that trend is job growth in the area.
These two metrics provide a complete picture of the health and future of a given market.
You want to find an area with various 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.
A recession or a negative news story could broadly impact the number of tourists and, therefore, job growth and population trend. On the other hand, a diversified job market is much more attractive since a hiccup in any single industry likely wouldn’t affect the area as a whole.
Laws Governing Rental Properties
Beyond the 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 excellent for tenants 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.
As an investor, you want some insight from local property managers who are intimately familiar with these laws so that you can find landlord-friendly areas.
While usually the last thing on investors’ minds, taxes can significantly affect the bottom line.
State income taxes and property taxes will impact your operating budget, thus, your overall return. Each state has a different tax structure, and it’s good to understand what you’d potentially be getting into so you won’t be surprised later.
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.
Cost of Living
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 (i.e., rent) to rise as more jobs and people move into the area.
Local Economy and Events
While the other, previously listed factors are much more critical, you may want to track a few local news stories once you’re pretty “sold” on a particular area.
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 the potential future of that market.
Local Government Initiatives
Just as with the local news, the local government is indicative 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 whose vision includes making the market vibrant and welcoming.
Strong leadership from the local government is attractive to corporations, which means that job growth will continue.
Your Local Knowledge
There’s always the chance you have greater insight into a particular area than other investors. For example, maybe you have a close cousin or best friend who lives there, perhaps you went to college there or grew up there.
Any time you possess a competitive 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.
Making the Right Choice
Even when you’re investing passively in real estate, you need to have a good grasp on where your money is going. So from Colorado to Arkansas and beyond, we’re always looking for the optimum markets to invest in, and we always make it a point to do our due diligence on each market we consider.
When you’re putting your dollars into real estate, it’s so handy to have a cheat sheet of factors to research and consider so you can be sure that your ultimate choice of market meets your investing goals.