What do Cleveland, Houston and Kansas City, MO all have in common? They may be nowhere near each other and have completely different local cultures yet they all made their way onto the National Real Estate Investor’s latest, “Worst Multifamily Markets to Invest In‘ list. But, why?
read more What elements are those areas missing that an investor needs to place close attention to? Multifamily investments can produce longterm cashflow but only if several key factors are present.
What factors are affecting those battered markets?
New construction, high rents, lack of employment opportunities are all red flags to an investor. But, sometimes rent controlled areas of high demand offer no room for profit or competition. And when that happens the demand is so high that supply hasn’t caught up and it creates a tight market for competition. And as the construction of new housing slips below the market’s desire prices soar for renters. When does it make sense to participate in a tight market? When the economy is strong and robust. California offers many of those kinds of opportunities. Even though, strict regulations, low supply and dense rivalry create a stressful investor climate, the economy is the largest in the union and will consistently stay in high demand with a population armed with the ability to pay higher prices. So, we addressed some of the worst choices to invest in multifamily but let us look at some winning locales. Denver, Des Moines and Boston all boast low vacancy and unemployment rates. Taking the extra time to examine the key factors affecting an area’s economic longevity can save an investor many headaches and costly mistakes. What winning factors do we like to see in an area where we are deciding to invest in multifamily properties?
- Employment Rate
- Population
- Real Estate (Vacancy rates, Median home prices, etc)
- Safety
- Walkability
Other valuable advice for the investor just starting out is to focus on smaller markets where the competition is not so fierce and profits are easily found. But, you MUST know your market. If you have intimate knowledge of an area you can use those smaller tertiary markets to create better yields. Don’t invest in a rural area you know nothing about, instead use the resources available to you to ascertain exactly what the cashflow of that property will be. Use the numbers to decide the longevity of any deal. If you need a quick recap on some basic investment formulas, check out my video explaining the real estate fundamental formulas and why you should use them before investing your hard-earned money. Know your NOI from your ROI and CAP Rate before you spend a dime!
