In real estate investing, selecting the right location is vital to success. Partnering with a private equity firm offers investors a distinct advantage: access to a wealth of experience and expertise. By tapping into the collective knowledge of seasoned real estate professionals, investors can benefit from rigorous deal evaluation, on-the-ground property management across diverse markets, and decades of industry insight.
At Viking Capital, we recognize the value of transparency and empowerment in our investor relationships. While our team diligently conducts comprehensive due diligence on market evaluations, we believe in equipping our investors with a clear understanding of our processes. This article aims to demystify our approach by outlining the ten pivotal factors we consider when evaluating potential real estate investment markets.
Top 10 Factors in Real Estate Market Analysis
Embarking on a real estate investment begins with a crucial first step: assessing your investment goals. Acknowledging the individuality of each deal, charting a strategic path tailored to its unique characteristics and overarching investment goals.
When analyzing a potential real estate market, investors should prioritize locations exhibiting signs of growth, poised to deliver exceptional cash flow, robust appreciation, or ideally, both. By leveraging your investment goals as a foundational framework, the following research checklist serves as a valuable tool to streamline your evaluation process and pinpoint the most promising opportunities:
- Job Growth
- Population Growth
- Median Household Income
- Landlord/Tenant Laws
- Taxes
- Path of Progress
- Cost of Living
- Occupancy Levels
- Local Government
- Competitive Advantage
Job Growth
Steady job growth is the most important metric to evaluate in each market. It serves as a strong barometer of a thriving local economy, drawing the interest of new businesses, developers, and residents to the area.
Job growth signals economic health and acts as a precursor to population growth. As job opportunities multiply, so does the influx of residents, bolstering the area’s tenant base. This surge in population translates to heightened demand for housing, which fuels an uptick in rental rates and real estate prices.
Population Growth
As previously mentioned, population growth depends on several key factors, with a robust job market standing at the forefront. However, it’s not the sole determinant; the cost of living also plays a pivotal role. Domestic migration often occurs when residents seek high-quality housing at an affordable price point. Factors such as attractions, activities, and educational opportunities further drive population growth.
Identifying areas characterized by sustained, long-term population growth—not merely temporary spikes—is key. Central to this trend is consistent job growth within the region.
Job growth and population expansion provide crucial insights into any given market’s overall health and future trajectory. Together, they paint a comprehensive picture of the area’s vitality and potential for sustained prosperity.
Median Household Income
The median household income plays a major role in the viability of a real estate market, offering valuable insights into both local and national economies.
Household income is a reliable indicator of financial stability. Understanding the median household income of a given area provides operators with crucial insight into gauging rental pricing and the potential risk of default.
Landlord/Tenant Laws
In addition to the fundamental factors of job growth, population growth, and median household income, understanding the regulatory landscape governing rental properties is paramount for investors.
One key consideration is rent control. A policy that may benefit tenants but poses challenges for landlords seeking returns on their investments. In areas where costs for contractors, pest control, and property management are on the rise, rent control measures can significantly impede profitability.
To navigate these complexities, investors should lean on the expertise of their sponsors who are well-versed in the intricacies of rental property laws. This insight can provide valuable guidance in identifying landlord-friendly areas conducive to investment success.
Taxes
Although often overlooked, taxes greatly influence an investor’s bottom line, significantly impacting their operating budgets and overall returns.
Both state income taxes and property taxes play a pivotal role in shaping the financial landscape of real estate investments. Given the varying tax structures across states, investors should understand the potential implications beforehand to avoid any unwelcome surprises down the line. By proactively understanding the tax landscape, investors can make informed decisions that optimize their returns and minimize financial hurdles.
Path of Progress
Pinpointing a location situated in the path of progress is a smart investment strategy. This concept is defined by areas primed for imminent economic expansion, propelled by robust economic drivers acting as catalysts for development.
Identifying a Path of Progress is crucial for unlocking potential returns.
Here’s what defines a Path of Progress:
- Properties experience rapid appreciation in value.
- The majority of new construction projects are concentrated in the area.
- Increasing numbers of families and individuals are flocking to the neighborhood.
Investing in the Path of Progress can accelerate returns. This is a strategic choice for savvy investors looking to capitalize on untapped burgeoning markets.
Cost of Living
Strategically targeting areas with a low cost of living, particularly in relation to the median income, can pave the way for significant growth opportunities. When residents find it feasible to live in an area without financial strain, it creates a fertile environment for the cost of living, including rent, to gradually rise.
As more jobs are created and individuals flock to the area, the demand for housing escalates, driving up rental prices and propelling overall economic growth. Investing in regions with a low cost of living sets the stage for promising returns as the local economy thrives and expands.
Occupancy Levels
In multifamily real estate investment, average occupancy levels are a critical indicator of the rental market’s strength within a region. This metric measures the average number of units occupied across multifamily properties, offering invaluable insights into the demand for rental housing.
When considering a region for investment, it’s essential to analyze the current state of the rental market. By comparing the local average occupancy level to the national average, investors can gauge the relative strength of the rental market in that area. This analysis aids in identifying promising investment opportunities and making informed decisions that align with the investment goals.
Rent Growth
Positive rent growth trends serve as a pivotal factor in evaluating real estate investment markets. As demand for rental housing increases, rents typically follow suit, reflecting supply and demand dynamics within the rental real estate market.
In many markets, a shortage of housing amplifies the need for multifamily properties. In turn, this drives up demand and fosters positive rent growth. Conversely, areas inundated with an excess of supply may compel operators to reduce rents to remain competitive. This can potentially diminish returns for investors in that area. Recognizing and analyzing these trends empowers investors to make informed decisions to maximize potential returns.
Competitive Advantage
Securing a competitive advantage can be a game-changer. This advantage can significantly elevate your investment approach and outcomes, whether it’s through hands-on management, access to exclusive off-market deals, or identifying emerging paths of progress ahead of competitors.
By leveraging such advantages, investors position themselves to capitalize on unique opportunities and gain a foothold in lucrative markets before others catch wind. This proactive stance not only enhances investment potential but also highlights the importance of strategic foresight and innovation in achieving success in real estate investments.
Conclusion
While passive investors rely on sponsors to conduct the bulk of due diligence, it’s imperative for investors to actively assess each investment opportunity, especially the market dynamics. By thoroughly evaluating the market investors can ensure alignment with investment goals and maximize returns. This checklist should be a valuable tool for investors, streamlining the due diligence process and conserving valuable time and energy.
Ready to explore new investment opportunities for multifamily?
Check out Viking Capital’s newest investment opportunity: Peoria Gateway. A luxurious 200-unit apartment community set to debut in 2026.
