Top Down Property Screening

[Alexander Sobrado]

Hi all,

I'm a fairly inexperienced investor (have owned one property) who now lives in Southern CA where cap rates are very low. Given that there isn't all that much attractive in my immediate area (cap rates are very low), I am more or less location agnostic for my next purchase, and would be willing to fly/drive extended distances if I found property that was attractive enough.

Ideally, I'd like to be able to perform a top-down analysis, filtering out cities with very low cap rates, and then further filtering based on macro-economic data to find markets that I would consider attractive from both a cashflow and appreciation standpoint. I understand this level of granularity may be tough, but has anyone performed this type of analysis before? Are their paid resources that you need to get the right data?

I understand investing locally is (typically) best and that you need to understand the markets you invest in well. This would be a starting point for finding markets I want to spend time learning about. There has to be a better way than just googling "markets with lowest cap rates"....

Thanks,

Alex

[Andrew Johnson]

Alexander Sobrado Yet another person looking for cash-flow AND appreciation. 🤣. I have yet to come across any resource that’s going to tell you the future of home appreciation. You know that in hindsight. You can look at things like per capita income, job growth, population growth, new housing starts, etc. The Indy realtor/investor has a reason why their market is the best, so does Nashville, so does Austin, so does Memphis, so does every single location talked about here. You can pull most of the data categories for City Data or even Wikipedia. What’s not there is how much weight you put on those categories. Different weights, different results. And it’s still always hindsight analysis.

My advice: Set a cap-rate or ROI ballpark and start filtering out the large cities. Then look at the second-tier, then the third-tier, etc. Then pick how you want to judge appreciation. Do you think past performance is indicative of future results? Some people do, some people don’t, you’ll have to make your own decision on that one. Who knows, maybe you think Hemet will grow like a weed with retiring baby boomers wanting to stay in California with a lower cost-of-living. Maybe you want a short flight so you want to look at Utah, Arizona, etc.

Just don’t get stuck in the hamster wheel like many in BP do: Looking for that magic holy grail city that will have great cash-flow and awesome appreciation. You won’t know the answer to that for 5-10 years.