Medium Multi-Family Market Analysis Methodology

[Jason V.]

A Happy New Year to the BiggerPockets Community!

While I wait with baited breath for Brian Burke's annual market analysis for the coming year...

(His 2016 analysis: Best markets to buy multifamily in 2016: A round-table discussion)

...I thought I'd ask around the community to see if I can figure out how to do this myself with a slightly different focus. 

I understand the generalities of how this study was done, and most of the major factors (population growth, job growth, etc.) but I'm less interested in properties in the 100+ unit range and Tier 1 markets. My focus right now is in properties I can self-manage (or mostly self-manage) and get into without having to raise capital, syndicate, or otherwise make myself hugely accountable to outside investors that I have no existing relationship with. (I would never feel comfortable with investing someone else's money in a way I hadn't done before on my own with great success.) So, in my mind, I'm looking at ~30 unit properties in Secondary and Tertiary Markets in the Northeast that have solid economic outlooks for the next 10 years. 

My home market of Rochester is currently bogged down with taxes and in one of the least business friendly states in the country, and is projected to lose population and businesses in the next 10 years. Yet there are also a lot of people coming here from out of area because it's cheap and cash-flows. I'm going to keep investing here because I live here and I know the market, but I don't see any real growth, which means we won't see any real appreciation (which is the historic norm for the area.) So in the short term, the cashflow is good, and as long as I'm buying value-add properties I don't have to worry too much about appreciation - but if I can do those two things in a market and get some appreciation on top of it....why wouldn't I want to do that instead?

What I'm really interested in is learning how to find and select these types of markets for myself, or at least figure out a way to start narrowing them down. What factors are most important? How are they weighed? Where can I find reliable information on population change and economic outlook?

So if you just want to say "Indianapolis is awesome" that's great, and I appreciate your input, but I'm still going to figure out for myself if I think you're right or not. 

Thanks All!

[Yousif Abudra]

@Jason V.

Thank you for asking this question. By asking it and looking to learn, I'd place you above 95% of the investors that only focus on their local market, and then get frustrated when they can't find suitable investment opportunities. From my experience, the short answer to your question is to utilize the research work produced by the major institutional players in the field. A good place to start is IRR's annual report, Viewpoint. This will give you a good overview of market cycles, growth rates, and trends by property type and sub class.

The long answer is that it takes work and time commitment.  I recognize that my mind, presumably like yours, tends to work in a funnel type way: I need to understand the broad landscape, identify areas of opportunity, and then focus time and effort on those.  It is an efficient approach.  But, it is more useful when used in conjunction with alternative ways of gathering information.  Here is my approach: Leverage the institutional real estate reports to get a broad picture of the landscape and trends.  Recognize that even the institutional players are wrong many times - their forecasts are just forecasts.  Read articles/studies discussing population inflows and outflows.  Understand where jobs are moving to and from.  Understand changes in business friendly/unfriendly tax policies (both property and income).  Setup alerts that e-mail you news articles identifying when and where large employers are adding factories/plants/jobs (I receive these daily).  Read reports on demographic trends and changes to US industry dynamics. Etc.  Be creative.

If the foregoing sounds like information overload, it's because it is.  Read alot.  The benefit is that over 2-3 months you will start to see patterns and trends that most do not.  The downside is that it takes an inordinate amount of time and dedication.

What you'll need to determine is how much is appropriate or "fit-for-purpose" for what you are trying to achieve in your real estate investment goals.  What I have found is that once you begin to recognize these patterns, you'll start to see how they can be applied in different markets.  You'll begin to learn new markets faster.  Real estate is local.  To do well, you need to understand the local market and have a way to execute on your particular strategy in that market.  Remember it is less about finding that "perfect market" because that really only exists in the imagination.  What actually matters is being able to identify an acceptable market for your particular investment strategy.

Best wishes.