Once you’re onboard and ready to invest in a multifamily real estate syndication, you realize the need to evaluate potential deals and their various markets so you can select the best strategic investment. You’re quite used to deciphering symptoms and recommending the best treatment for your patients, all potential risks considered, but this is a whole new ballgame!
The great part about syndications is that you’re not relying solely on your personal knowledge, your resources, and your experience. When investing in multifamily syndications, you are leveraging the experience and expertise of an entire team of syndication professionals who are often on the ground in various markets. Because of this, you don’t have to know everything about everything in that market to make a smart investment!
The possibilities as to the markets you could invest in are limitless, which can be both exhilarating and overwhelming at the same time. On one hand, 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. However, this will take a ton of time and energy (ain’t nobody got time for that!) and it won’t help you draw any conclusions anyway.
Instead, begin by assessing your personal investing goals. Maybe you want to invest in a growing market that also provides exceptional cash flow. Maybe you’re after a moderate cash flow and strong appreciation. Using your goals as a basic framework, this research checklist will help narrow things down:
- Job Growth
- Population Growth
- Job Diversity
- Landlord/Tenant Laws
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Whether You Have an Unfair Advantage
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.
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 any given market.
The objective is 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, within the tourism industry.
A recession or a negative news story covered in your demographic 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.
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.
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.
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.
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.
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 an Unfair 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 an unfair 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’ typical returns & deal structures align with your investing goals.
You’re likely investing upwards of $ 50,000 of your hard-earned W2 income into your first real estate syndication deal, so your due-diligence on the sponsor team, the asset type, and the market in which you’re investing is 100% understandable. This checklist will help guide you toward looking at market data that does matter, saving you precious time and energy and getting you closer to making one of your best choices toward creating generational wealth for your family.