edited in 2023
Real estate is very local and highly dependent on the local economy. A properties performance is strongly dictated by the market it is in. Therefore, choosing a market should be done before considering any property. We will discuss six of the attributes that we use to analyze a market for real estate investing.
Population
The population is the number of people in a specific geographic area. If the area is sparsely populated then the search for a property in market would need to be wider in scope. The inverse is also true, for a densely populated area you would cover a smaller geographical area. Also, an important thing to consider is population growth. You would like to see overall population growth in the area over the course of a 3-5 years. This is an indication of demand in the area.
Age Demographic
The age demographic is a good indicator of what kind of real estate properties would be good investments in the area. If there are many children then likely 2-3 bedroom apartments would be a good investment. Students, seniors, families, and singles can all be determined from demographic data. You should also consider growth of certain age groups when analyzing for the investment vehicle of your choice.
Vacancy
Vacancy is how many empty units there are vs total number of units available in a market. We look for markets with decreasing vacancy that indicates strong rental demand. Typically, we look at 3-5 years of vacancy history.
Job Diversity
A market should not be solely concentrated in one industry or company. A good market will tend to have at least three industries that have major contributions to the economy. The more diverse the economy is the more stable it will be. Many economies have failed due to being heavily concentrated in one sector. Examples include Detroit with the auto industry and Texas with the oil industry. We look for markets with no more than 30-40% concentration in any one industry.
Top Employers
Much like job diversity, top employers indicate the health of the economy and its ability to weather any economic downturn. If a market is too heavily employed by a single company than the market’s economic fate will be tied to that single company. If the company is strong then maybe it is ok, but technology is changing at such a rapid pace making it difficult for large companies to pivot at times. Here we look for no more than a 20-25% concentration of employment in any single company.
Unemployment %
Unemployment % is the percentage of non-working employable persons in an area. To be considered in this percentage the person must be actively seeking employment. There is no specific number that we target for this particular attribute. We look at the year over year change in unemployment %. This number should be decreasing or consistent, indicating the market has increasing jobs if the other metrics mentioned previously are trending in desirable direction.
Your hard-earned dollars took you many months/years to make. The decision to invest in an asset should not be made hastily. One of the important steps is to analyze the market, and then choose the asset type. We mainly focus on the Portland Metro Area, you can find more about the Portland Metro Area in our post.
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