Choosing the right market when investing in real estate is one of the most fundamental contributors to and predictors of future earnings and appreciation of the assets. It can make or break your investment! For example, a property might be brand spanking new with all the great features, but if it’s in a location no one wants to live in, you’re in big trouble as an investor!
This philosophy rings true even for big opportunities like a real estate investment fund. That being said, a lot more goes into the market analysis for an investment fund or syndication than an individual investor. This is because the fund can spread its markets by investing in several properties, creating a nicely diversified portfolio to manage risk and create upside potential for its investors.
Let’s dive into the importance of markets for a multifamily real estate group, how diversification plays a crucial role in the fund outcomes, and a look at the Viking Capital approach to market analysis with real-life examples.
Why Are Markets So Important?
When we discuss markets in real estate, we’re talking about the environment or location in which the multifamily property is situated. However, markets can also refer to the overall state or phenomenon of buying and selling houses, just like the stock market. Because of this, it’s common to hear phrases such as “hot market,” “seller’s market,” and so on.
While properties can be knocked down, done up, or built from scratch, the surrounding area and attractiveness of a particular market are out of the control of property investors.
Instead, it is up to investors and managers of real estate investment funds or multifamily investing syndications to deeply analyze the markets of the various properties they wish to add to the portfolio. Some considerations that may impact the decision to invest in a market (or location) include:
- The demographics
- Access to local amenities
- School access and school quality
- Job access
- Net migration
- Leisure and community
- Local climate
- Access to beaches, green areas
While not every market scores high in every category, the best multifamily investments are in markets with high marks in most of these areas.
How Markets Impact Diversification
Although putting all your eggs in one investment basket can be profitable (if that basket is always highly successful), it’s generally considered a higher-risk investment strategy because it lacks diversification. A lack of diversification in an investment portfolio can quickly lead to a lack of returns and significant income loss.
Diversification in real estate is often difficult to achieve unless you are a very high earner or know how to invest in multifamily real estate. While there are opportunities to diversify in property types, one of the more critical diversification markers is the difference in markets.
For example, even if you find quality Class A or Class B properties, if they’re not in the right markets, the environment may not be conducive to profit, and the investment may not pay off.
The Viking Capital Approach To Markets
Here we’ll examine the Viking Capital investment strategy and how diversification plays a critical role in our fund’s success.
Which Markets Do We Invest In
After deep market research at Viking Capital, we pinpointed several high-producing real estate markets. These markets form the basis of our current and upcoming investment options. The markets include:
- Texas: San Antonio, Houston, Dallas, Austin
- Arizona: Phoenix, Tucson
- North Carolina: Raleigh, Durham, Chapel Hill, Charlotte
- South Carolina: Charleston, Greenville
- Georgia: Atlanta
- Florida: Tampa, Jacksonville, Orlando
The collection of these states throughout this area is commonly referred to as the Sunbelt, a sought-after renting market well-known for investors’ good returns!
The Viking Capital Market Analysis Strategy
Viking Capital’s market analysis focuses on opportunities that present the best return with the lowest possible risk making it an attractive investment option for accredited investors. Our strategy focuses on two fundamental approaches:
- Evidence of solid demographics, net migration, and thriving job markets
- Phenomenal demographics and investment markers despite belonging to a lower level market for submarkets or tertiary cities
This process adds to the diversification of the overall fund (and a better investor experience)!
Viking Capital’s Key Markets
Thanks to our structure, strategy, and market analysis, we’ve identified two important market types that focus our investment efforts. This provides a diversified and attractive spread for our investors.
Market One: Primary Growth Tier 1 Growth Metropolitan Statistical Areas (MSA)
An MSA refers to a metropolitan area with a population of at least 50,000. In addition, a primary market refers to an established and economically sound market with a solid GDP.
Viking Capital has identified investments in these areas with strong demographics, positive migration, and a strong job market. As a result, we have acquired properties in Atlanta, Dallas, Austin, and Washington, DC, and we will continue to seek opportunities within these cities.
Market Two: Elite Submarkets In Secondary/Tertiary Cities
Secondary markets refer to cities that are experiencing growing job markets and population growth. A tertiary city may have a slightly smaller urban area but lots of upside potential.
Many submarkets within these areas present unprecedented investment and demographic markers despite being below primary growth markets on the real estate investment scale. Because a greater MSA commands a slightly lower demand, Viking Capital can purchase assets in these high-performing submarkets at a higher yield pricing.
Why Do We Focus on Several Markets?
Viking Capital’s duty is to our real estate investors when multifamily real estate investing. Because of this, investors within the fund do not have to worry about the risk involved in the multifamily investment process. In addition, by researching, accessing, and investing in multiple markets, property ages, and property classes, we can offer our investors a diversified and lower volatility multifamily real estate experience!
Understanding Markets Helps You Learn How to Invest In Multifamily Real Estate for Success!
Markets play an integral role in real estate investments’ valuation and future potential. Therefore, understanding how markets are classified and their impact on property value can help you become a better investor. Generally, markets are defined by their different risk levels for potential investors. Because of this, the best multifamily real estate investing options are not those that invest in a single market but in diversified funds or real estate syndications, just like Viking Capital.
If you’d like to learn more about how diversification helps drive our asset selection process and can help preserve your capital while creating generational wealth, reach out to a team member today!