How do you find and analyze emerging markets across the States?

Question

Hey All!

I've been a high value residential real estate investor for 9 years in northern New Jersey. For many reasons I've decided to leave this business model and switch my focus to acquiring apartment complexes. My goal is to acquire 100 rental units by the end of the year in a new up and coming market.

Due to high taxes, high acquisition cost and renter friendly laws here in New Jersey I am looking to buy my properties outside on New Jersey/ New York. I'm considering Texas, Florida, North and South Carolina however I am open to any emerging market across the Country.

My questions are for the experienced investor in this forum...

1) What are the defining factors for you to invest in a new market?

2) What markets are you currently investing in and why?

I would love to create a on going conversation on this topic as I am open to sharing all of my research on up coming markets.

Thank you and I look forward to hearing from you!

Michael Sjogren · Answer

The key factor in determining whether a market will grow is job growth. We look at the previous 2 years and the forecasted 5 year job growth. You can get these numbers from the Bureau of Labor Statistics. Also subscribe to sites like AreaDevelopment,  National Multifamily Housing Council, and read the Milken Institute's Top 200 Performing Cities.

Besides job growth we look for the following items:

• Population 100k+
• Average household formation size less than 2.5 
• Well diversified economy (pull up list of largest employers from the Chamber website)
• Percentage of population between 24-35
• Percentage of male vs female
• Rent price trends
• Vacancy rates
• Supply (look at number of new permits pulled & compare to current available units vs. forecasted household demand within next 24-36 months)
• Active Economic Development Committee

If you're interested in learning more about emerging markets and how to identify them, I'd also recommend reading Dave Lindahl's Emerging Real Estate Markets book (link to book on Amazon).

Feel free to reach out with any questions.

Mike

Matt McCourry · Answer

@Eric Moeller  Thats a fantastic question and one I am currently answering for myself!

Heres the overview of what metrics I am currently compiling across various southeastern markets.

1) Population, at least 250k in the MSA

2) Jobs and Job growth, Job growth needs to be at least above 2.5% to indicate a progressive economy.

3) Unemployment Rate (should be below the state and national average to indicate proper growth)

4) New product added (especially for multifamily)

5) Absorption rates over a period of time (probably the last 12 months and then projected over the net 12 months)

Of course there is much much more, but this is a start...

I am currently looking for multifamily product in all of your major southeastern coastal markets as well as RDU NC and Greenville SC, I would say that the only MSA to stay away from right now is Atlanta, its smoking hot across the board and even more so for multifamily product...  Hot markets do not equal emerging markets...

Also, if your getting into the apartment game @John Cohen would be a great resource to reach out to...

Good Luck,

Brian Adams · Answer

@Matt McCourry, curious to gain more insight from you why you don't like Atlanta?

I am under contract on a 240 unit deal in Atlanta, B asset in a B- area, purchase price is $9.4 million and it appraised at $9.9 million. In my opinion, the core fundamentals of this market are still very strong and my exit strategy is to sell this asset in the next 3 to 5 years.

I have experience with emerging markets as my 200+ unit deal I bought in Dallas, TX for $6 million in July 2014, I refi'd in October 2015 for over $10 million and will be selling in 2016.

Michael Sjogren · Answer

Hi @Vanessa Vandervalk. Yes, I agree, this was one of the most challenging pieces of information to find! Here is a link to a site that includes resources for finding employment projections for each state. I found this link at the bottom of the BLS site under the "Other Useful Links" section > "Projections Central."

Some other sites for demographics are listed below.

The Census Quick Fact Finder is great for comparing MSA's against eachother.

Citydata.com ; areavibes.com

Here is another source from ASU's research on MSA demographics.

Feel free to reach out with any additional questions.

Mike

Brian Adams · Answer

@Josiah Mann, thanks!!

Yes I do follow a process. As a CPA I am all about checklists, systems and process.

The biggest thing for me in evaluating a market, and some smart people in this thread have already covered it - is Job and Economic Growth.

From a process perspective, I try to keep my real estate investing approach simple and it boils down to 2 things - "Deals & Dollars". I need the right Deal to show my investors, and I need the right investor (Dollars) for the Deal.

I work the system backwards meaning if I know what my investor is looking for like a value-add deal in X market, their return and cash flow requirement of Y, and their amount of capital to invest is Z, I go shopping in the market to find a good deal for the investor.

If I don't like the core fundamentals of that market, I let the investor know my reasons so I can educate them and hopefully show them a deal in a market that does meet their requirements.

Hope this makes sense...

Mike D'Arrigo · Answer

@Eric Moeller TX is a landlord friendly state but if you don't like the high property taxes in NJ, you won't like them any better in TX. TX also has some of the highest insurance rate in the nation. You might want to look at the Midwest. I like Indianapolis and Kansas City.

Pete Abilla · Answer

=====I wonder what Dave Lindahl would classify Cleveland Ohio as of January 2020. What does everybody else think?

Eddie Godshalk · Answer

funny how no one has figured this out yet...

Paul Timmins · Answer

@Eric Moeller

We just bought in FL, the Carolina's and TX

Paul

Matt McCourry · Answer

@Brian Adams Not so much that I don't like it, as it is where the research is pointing.  Atlanta is starting to cross over into the Hypersupply or "Sellers Market Phase 1" (as Dave Lindahl would call it).  Although it is still in the beginning stages, competition is getting fierce and unless your already rooted in the market it would be tough accurately gage where its headed.

That deal you have there is a heck of a deal though, congratulations!  And I like the other posts about "deals and dollars"  Where I am at in my business right now, it doesn't make sense to go boxing down in Atlanta, thats not to say that there aren't deals to be had!

@Michael Sjogren Great post!  Thanks for the additional links, and the BLS is a great resource but a nightmare to use...

How do you find and analyze emerging markets across the States?

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