Investing in multifamily real estate syndications gives you the luxury of relying on the sponsor team’s expertise. The team likely has boots-on-the-ground knowledge of the various markets which gives you endless investment opportunities and ultimately saves you a great deal of time and energy.
Fortunately, you don’t have to deal with the overwhelm of doing all the research yourself, but you do need a working knowledge of what factors should be considered when finding and vetting a real estate market.
Instead of learning by trial and error, start by assessing your personal investing goals. The best deal for you depends greatly on what you hope to accomplish during the syndication project. Once you’ve determined your investment intent, use this handy research checklist to better hone in on the real estate market that will best help you meet your investing goals.
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Geographical Features
- Cost of Living
- Median Household income
- Local Government
- Whether You Have a Competitive Advantage
Since steady job growth is indicative of a healthy local economy that’s likely attractive to new businesses, developers, and residents to the area, this is the most important metric to evaluate in each market.
Job growth is a leading indicator of population growth. The more jobs, the more residents, the more likely the area will maintain a strong tenant base. When more people are attracted to an area, the demand for housing increases, which drives up rent and real estate prices.
Since the population in a certain 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 key, and a major factor supporting that trend is job growth in the area.
These two metrics provide a full picture of the health and future of a given market.
You want to find an area with a variety of 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 largely impact the number of tourists, and therefore the job growth and the population trend. A diversified job market is much more attractive since a hiccup in any single industry likely wouldn’t affect the area as a whole.
Landlord friendly states
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 great 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 you can find landlord-friendly areas.
While usually the last thing on investors’ minds, taxes can make a huge difference on the bottom line.
State income taxes and property taxes will both 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.
Replace with something about we look for communities that have low crime and a Median Household income of 50,000 or above.
While the other, previously listed factors are much more important, once you’re pretty “sold” on a certain area, you may want to track a few local news stories.
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 potential future of that market.
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 who’s 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.
Whether You Have A Competitive Advantage
There’s always the chance that you have greater insight into a certain area, more so than other investors. Maybe you have a close cousin or best friend who lives there, maybe you went to college there, or you 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.
The Importance of Vetting Real Estate Markets
When you’re a passive investor in a real estate syndication deal you’re not responsible for choosing individual properties. While having a sponsor team is a big relief, that doesn’t mean you’re off the hook completely.
You should still do your due diligence in vetting the markets you’re investing in. After all, you are investing a great deal of money and it’s worth your time to properly research the investment market.
Taking the time to learn about the local economy, the job market, and population metrics where your capital is headed will bring you peace of mind and confirm the market is capable of meeting your investing goals. By committing to the market vetting process, you’ll grow your investment knowledge and experience.
If any of this seems confusing or trips you up, I’d like to reassure you that I’ve already worked with teams who specialize in the market, the asset class, and much more prior to offering any investment opportunity. I’m here to answer your questions and guide you through the syndication investment process.