When investing in multifamily syndications, you are leveraging the experience of professional teams who are often on the ground and very experienced in your deal’s particular asset type and market. Across the nation, no matter what type of real estate, location, or class, there are professional syndication teams assembled whose core objective is to execute the business plan to best benefit investors and tenants.
Because of this, you have unlimited potential in scale, diversification, and impact, which can be both exhilarating and overwhelming at the same time.
You know you need to conduct some due diligence on your own, so maybe you start by diving down every possible rabbit hole, cross-referencing “best real estate market” lists, trying to make sense of current population trends, and even looking up news local to areas you’d be interested in. Honestly, stop now because this won’t really help you draw any conclusions, plus you’ll waste a ton of time and energy.
Instead, begin by assessing your personal investing goals. Perhaps you desire an opportunity in a growing market that also provides decent cash flow. Using that basic framework, this research checklist will help narrow things down:
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Taxes
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Whether You Have a Competitive Advantage
Job Growth
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.
Population Growth
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.
Job Diversity
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/Tenant Laws
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.
Taxes
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.
Geographic Features
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 News
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.
Local Government
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.
How To Find And Vet The Best Commercial Real Estate Markets
As a passive investor, even though you’re not doing the work of choosing individual properties, you must still conduct thorough due diligence on the markets in which you’re interested. This is the only way you can ensure that the deals you select exist in solid markets that meet and support your investing goals.
Your schedule is already full with the demands of a high-stakes career and a growing family, so the last thing you want to do is waste time. Start with this short list of ten key metrics to explore when evaluating a real estate syndication investment. Pinpoint your lifestyle and financial goals and values and then see which real estate markets seem to align the most.
If you’re ready to see the back-end of some real estate syndication deals, learn more about how we vet them, explore Growability Equity’s risk mitigation plans, and have an opportunity to invest in our upcoming deals, you’re invited to join the Growability Equity Club today.
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