The Best Way to Analyze Markets or Submarkets?

Question

BP, I am diving head first into the commercial real estate world!

A little about me I am a military member currently stationed overseas.  I found BP while on my deployment this last fall and started researching this a future business for me and my family. I am glad I did! This summer I decide to leave military and to jump back into the civilian world in the summer of 2019. My plan is to make MF CRE my future business and I am working to make that a reality. To help me work faster through the learning curve I joined with a coach and he has been great. We are taking things step by step and working the process for purchasing large MF properties.

The reason why I am making this post is; one, to be more active in BP and two, find different ways people go about searching for markets and submarkets. What I am interested in is the thought process you use in researching? What data do you like to use? What tools do you use?

I have queried the BLS.gov and also city-data.com and I looked primarily at population growth, unemployment rates and median income. I have also used rentometer.com. However, I view the numbers and sometimes get lost on what I am trying to do. My coach has given me many pointers and they have helped a lot, but I wanted to open it up to the forum so I can get a good swath of perspectives on how others tackle this important skill.

Maxwell Manatt · Answer

Marcus and Millichap puts out excellent quarterly reports for multifamily (as well as other asset classes) in many of the big Metro areas, you have to register and provide an email:

http://www.marcusmillichap.com/research

Their reports are really excellent because they break it down by sub market. Just keep in mind that often the names they use may be different than what local operators use.

I also like the HUD comprehensive housing analysis reports. These are really great for going back in time and looking how markets have changed and performed historically. I personally am always interested in how a market performed through the most recent recession (2007-20011). The HUD reports can give you an idea of what apartment vacancy did during that time frame. Keep in mind this is not the most user friendly website lol:

https://www.huduser.gov/portal/ushmc/home.html#state_map

From there I try to find sub markets within the metro area that are close to the median rent, have a unique draw (walk ability, close to jobs, good schools ect) and are either in the path of progress or in a very supply constrained area. For instance in Little Rock AR, a market that I am active in, I like the areas that are just west of downtown because there is a river to the North and a freeway to the south and not much infill land available. This means that if I own units there it is unlikely that new units can come online and compete with me. But once you get a few more miles West you reach an area that is experiencing a high volume of new development. I stay away from that area because I do not believe the population growth or job growth will support all of that development long term. But in a fast growing market like Orlando Florida or Dallas Texas it may be desirable to be close to new development, that is what is referred to as the "path of progress." Great to be in the path of progress as long as you can be confident that those new units will be absorbed.

The local city or county municipal website can be very useful in providing the more granular data. Building permits specifically can almost always be found on the local municipal website. This gives you an idea of how much building is occurring and where it is occurring. Once you have an idea of the market bring up what you have found from your research with the people you talk to. Local bankers, Brokers and Property managers may give you subjective insight that is extremely valuable.  Also visiting that market to walk the streets and talk to residents and proprietors (think restaurant owners, gas station attendants and Uber drivers) often times they can tell you something in 5 minutes that you could never glean from hours of research.

Cheers

Todd Dexheimer · Answer

Read this article that I wrote:

https://www.biggerpockets.com/blogs/10145/66160-ho...

Price Paramore · Answer

Thank you for the tip on the HUD website and local building permits. Those are some things that I will try to employ to complete my research.

Todd Dexheimer · Answer

City-data is ok. It's a bit dated. I would get the co-star report from your local brokers/Property managers. Also, often some big brokerages like Colliers, Marcus and Millichap and others put that information out.

To determine the transition, you need to know the back story and base it on the trends. There is no exact science. A lot is opinion based, but the data should point to a strengthening market, with low new construction deliveries.

Colby Fryar · Answer

@Price Paramore  City-data.com includes vacancy rates and a lot of other great data as well.

Price Paramore · Answer

@Todd Dexheimer thank you. I read through your article and it was very informative. I have a couple of questions if you don't mind. How do you determine if the market or submarket is transitioning from phase 1 to 2 or 2 to 3? Is it looking at the numbers and knowing from experience that the market is shifting? Or do you rely on a metric or a combination thereof?

Last question, where do you find the vacancy rates? I tried looking on BLS. I found a BP article that talked about using the Census.gov, agents, landlords, and PMs. I checked out the Census.gov site and found vacancies on a regional basis. You know of other sources for vacancy data?

The Best Way to Analyze Markets or Submarkets?

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