Searching for best place... method ?

Question

I am trying to figure out a method to identify the best place (Metropolitan Area) in the US to find a "buy and hold" property.
A common method is to identify several parameters, score each of them.

I identified the following parameters:
Unemployment in August 2012 (from city-data.com)
Unemployment trend (from city-data.com)
Zillow Home index value
Zillow Rent index
Property managers accredited by BBB

Can you recommend a different method?
Can you add some other parameter to take into account?

Ned Carey · Answer

If yo are talking about SFHs more important than the market is the individual deal. A great deal in a lousy market can still be a great deal.   A lousy deal in a great market is still a lousy deal.

However if you are talking larger projects like a 100+ unit building or a shopping center it is harder to get something substantially below market. So with a larger projects it is more important to buy in the right market.

Large developers look at jobs, jobs, jobs. Jobs cause population growth.  Population growth fuels demand and demand drives up rents and values. So look for areas that are growing, have a strong jobs outlook and leadership that is business and growth friendly.

One place to look is Milken institute - best performing cities
Good luck - Ned

Seth Williams · Answer

Just to piggyback on Ned Carey and Marco Santarelli's points about jobs - you may want to consider who the major employers in your chosen area are (and the diversity of those employers)...  especially if you're looking at larger, multi-unit buildings - because the consequences of your decision (good or bad) will be multiplied.

For example - if you're looking in a market like Detroit (which is hugely affected by the health of the auto industry), you should understand that this carries certain risks with it. When the Big 3 auto companies do poorly, your investments in that area will likely feel the pain as well.

If you're looking in a market like Chicago (which has a much more diversified employer base), the well-being of the city as a whole (and your investments) won't be nearly as contingent on the fate of any one particular industry.

If your property is situated in an area that has all of it's "eggs" (aka - jobs) in one basket - you're just ratcheting up the level of risk that you'll have to tolerate.

Marco Santarelli · Answer

Hi Andrea P.,

The criteria used for the appreciation forecasting model in my '2013 Housing Market Forecast' include migration trends, employment trends, and housing trends.

Some of the data sources include:  U.S. Census Bureau, Bureau of Labor Statistics, Consumer Price Index, Federal Housing Finance Agency, Moody’s Economy.com, The Brookings Institution, National Association of Realtors, and National Association of Home Builders.

The numbers tend to be a little conservative, but the accuracy over the last several years has been over 80%.

Andrea P. · Answer

Hi Mike B.. 
I have no target area yet and have no crystal ball either. Since there is no standard criteria to find the right market, I will use my own. 
As far as I know, Zillow is nothing more than a data collector, I believe is useful at least for people who lives outside the US.
I could start with a market I already know (Huntsville, AL) I have some contacts there, but I am looking for diversification and higher performance.

Hi Marco Santarelli,
Your "2013 Housing Market Forecast" reports only the final result, can you explain the criteria you used for identifying the appreciation?

Hi Seth Williams,
I already have property having the Government egg. It could be considered anti-cyclical market.
Detroit brings the risk as well as opportunities... An old car will be more expensive than a new one (repair, maintenance..). After a while Americans need a new car.

Mike B. · Answer

I despise the person who invented Zillow. I have yet to see one comp that was in the ballpark on that site, yet it's brought to me as a legitimate comp weekly. End of rant.

Open up a LinkedIn account. It's going to be the easiest way for you to find a Realtor who knows and understands investment properties in your target area. There are also a lot of Realtors on here. If you start a thread looking for somebody, they will more than likely respond to you. You need this person in order to get first hand knowledge of the market you're buying in and someone who can give you true comps.

Marco Santarelli · Answer

Ciao Andrea P.,

Consider downloading my "2013 Housing Market Forecast" to supplement your spreadsheet.

Having a higher average rent relative to the average property value is good but only one part of the bigger picture.

You want to consider the health of the local economy (jobs and job growth, employment trends, migration in and out, etc.)

Next you want to consider the neighborhood, and finally a close look at the property itself in terms of cash flow, cash-on-cash return, and total ROI.

I bought some property in specific parts of Detroit in early 2004 when things were looking 'up' for the city.  There was a lot money coming in, and new employers were hiring near the core.  That turned around by 2006 and it make my investments harder to keep leased and rents went down.  So, these things can happen, but a broader analysis will help minimize your risks.

P.S.  Don't get too wrapped up with the number of property managers listed on the BBB (which is biased, dishonest discriminates against non-paying members).  You can find great property managers in every market through referrals, and/or with a little due diligence.

P.P.S. Take a look at Indianapolis as well.

Andrea P. · Answer

I created the following table:
https://docs.google.com/spreadsheet/ccc?key=0AoZFdGAR8vTydFVZdTdBSk1SUUZVd3dNcmMzSExjb2c&usp=sharing
I believe it is easier to find a good deal in Area having higher rent compared to house price. 
Memphis hits 17.9% (Avg. rent x 12/ Avg. price). 
Memphis has also a highest number of BBB property managers per millions residents.

I put Huntsville, AL in the list because I have a house there.
Lesson learnt: Huntsville was very promising city in 2009 after the BRAC 2005 (Base Realignment and Closure).
Milken institute - ranked it the 8th best performing cities in 2011.
Huntsville has a lot of governmental jobs which stabilized the economy during the crisis.
Huntsville has not natural edge and has a very good roads therefore there could be a risk of overbuilding.
A congested city has higher chance of house price increase in case of population grow compared to a city which is far from congestion.

In 2012 the US government cut expenses and this has been reflected in the Huntsville economy and real estate market.

Andrea P. · Answer

As a foreign investor, I have to identify an area to looking at. 
My target is $50K SFH.
Considering that the individual deal matter more than the market, I could spend a small 5% of my effort/time to find the market.

Brian P. · Answer

When I buy out of state I only want to know 2 things. Cashflow, and the probability of that cash flow increasing steadily over time.

Searching for best place... method ?

Most Popular Reply