Picking a Market to Invest in Real Estate
Importance
- Choosing the right market is crucial for investment performance.
- The chosen market affects the performance of individual investments.
- There is no "best market" - find what works for your strategy.
Market Research Process
- Set Your Priorities
- Determine if you're looking for appreciation, cash flow, or both.
- Create a Short List
- Choose 5-10 markets for deeper analysis.
- Consider personal preferences or published lists on best markets.
- Conduct Market Research
- Use the market picking worksheet from BiggerPockets.
- Analyze both market fundamentals and housing market conditions.
Market Picking Worksheet (Example: Huntsville, Alabama)
Market Fundamentals
- Population Growth: 2.1% vs. national average of 1%.
- Household Income: $61,000
- Wage and Income Growth: 5% last year (higher than inflation).
- Unemployment Rate: 2.1%, very low.
- Job Growth: 3.6%
- Home Ownership Rate: 58%
- Median Age: 37
- Biggest Employers: US Army, medical facilities, NASA, Boeing.
- Crime Statistics: Below national average.
- Public Schools: Mixed quality; suburbs may offer better options.
- Regulatory Environment: Favorable for investors and landlords.
- X Factors: Look for local government initiatives, business climate, etc.
Housing Market Conditions
- Median Home Price: $315,000 (flat growth last year, 46% over 5 years).
- Housing Inventory: Up 12%
- Property Tax Rate: 0.36%
- Insurance Cost: ~$1,500
- Median Rent: $1,463
- Rent Growth: 3% last year, 50% over 5 years.
- Rent to Income Ratio: 29% (rent is affordable relative to income).
- Rent to Price Ratio: 4.6% (indicates low cash flow potential).
Advice for Using the Worksheet
- Takes 15-20 minutes initially, then 5-10 minutes with practice.
- Helps compare markets on short list.
- Identifies strong markets for cash flow or appreciation.
Additional Resources
- Free worksheet available at BiggerPockets.
- Masterclass offered for more in-depth training.
Conclusion
- Use the worksheet to aid in market research and decision making.
- Next week's masterclass will provide detailed insights.
Speaker: Dave Meyer, VP of Market Intelligence at BiggerPockets.