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Living in California comes with incredible benefits. The beaches and mountains, thriving tech and agriculture industries, the culture, the relaxed vibe to name a few.
What California doesn’t have is a great real estate investing market. Actually, even if you could find a cash-flowing property, state and local laws around business entities, tenant rights, and more cause investors unexpected headaches and massive costs that often go overlooked.
Luckily, you can live where you want to live and invest where the numbers makes sense – in the top markets across the US.
But, how do you find those markets without being a local?
When investing in multifamily syndications, you can leverage the experience of professional teams who know these great markets inside and out. They know the best neighborhoods, commute patterns, and the path of progress.
Because of this, the possibilities about where you could invest are limitless, which can be both exhilarating and overwhelming at the same time.Â
You could dive 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. You could schedule calls with multiple local realtors, lenders, property managers, contractors, and more (because having the best real estate team is important).Â
Honestly, this won’t really help you draw any conclusions, plus you’ll waste a ton of time and energy.Â
Instead, begin by assessing your personal investing goals. Maybe you want to invest in a growing market that also provides decent cash flow, or maybe you are looking for more appreciation. Once you know what your primary goals are, you can tackle market research.
We use use the following checklist to determine if a market is worth investing in:
We’ll dive into each of these items in detail below. Remember, as a passive investor, you are leveraging our time in performing the basic research we outline below. We take the time to dig through statistics and websites to evaluate each market for our investment offerings.
While we do most of the work for you, it is always helpful to cross-check and do your own research too. Think of it as an investment in your own knowledge and peace of mind. Once you find the type of market you like, it gets easier and easier to evaluate them and target them in your investing journey.
Since steady job growth is indicative of a healthy 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.Â
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.Â
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.Â
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.Â
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.
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.Â
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.Â
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.Â
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.Â
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.
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.
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.
As a passive investor, even though you’re not doing the work of choosing individual properties, you must still do your own due diligence on the markets you’re investing in. That way, you can ensure that those markets are solid markets that meet your investing goals.
Here at Blue Elm Investments, we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits.
If you’re accredited and looking to deploy capital, we invite you to sign up for our Investor Club to get access to our current or upcoming opportunities.
