How to analyze which market is good for multi family using MSA?

[Mohammad Ali]

Hello friends,

I am out of Chicago and looking to invest in a multi family 5+ units.

The Chicago market is pretty expensive as well as with the taxes sky rocketing, I feel that there are other markets that are more investor friendly.

Please let me know your thoughts in the below.

- How would you find MSA (metropolitan statistical area) on markets that I am interested in? Say a city in Texas or Florida?

[Jon Schwartz]

@Mohammad Ali, I made a list of the country's best-performing MSAs based on analyzing Census Data since 2005. I'll be happy to share it with you. Here's a brief rundown:

I'm using Census Bureau data -- specifically, the American Community Survey (ACS) 1-Year Estimates, which are annual reports going back to 2005. The ACS covers all the big census topics: population, income, unit count, vacancy, industry diversity, educational attainment, rents, home prices, etc. The annual numbers cover every MSA in the country.

The first thing I did was create a regression model to see what metrics actually track with rising rent over the years 2005-2017 (2017 is most recently published ACS). The most-correlated metrics are:

1. Supply (as measured by persons per unit)
2. Median Household Income Growth
3. Job Growth
4. Population Growth

I used these four metrics to score each MSA with a population of 100,000 or more. The score is weighted such that the more-correlated metrics (#1 and #2 on the list) contribute more points than the less-correlated metrics (#3 and #4). The score is also weighted more by recent years (2012-2017) than earlier years (2005-2011).

The spreadsheet lists the MSAs in order of this score, and it also includes all the supporting metrics. It lists median rent growth, population growth, job growth, median household income growth, unit construction, and persons-per-unit change over the periods 2012-2017 and 2005-2017.

Because smaller markets (less than 500,000 people) tend to be more volatile than larger markets, I also include each MSA's volatility as represented by the standard deviation of each metrics. The volatility numbers don't factor into the score, but they're there so you can see them.

I also included other metrics of importance (though, again, they're not a part of the score): educational attainment, industry breakdown, and building size makeup.

Finally, I calculated the US and MSA averages of every metric and gave each data point a percentile -- so it's pretty easy to digest everything once you've found your bearings. For example, median rent in Greeley, CO grew 19.2% between 2012 and 2017. Is that good or great? Well, that puts Greeley in the 73rd percentile, but the median rent growth in all MSAs over this period was 14.4%. So, you decide!

I'm working on a new spreadsheet that analyzes more recent data -- specifically, monthly employment numbers from the Bureau of Labor Statistics and the Census Bureau's monthly report on issued building permits. Both of these are on the MSA level. My thinking is, if you can track where jobs are being created and where not too many buildings are being permitted in almost real time, you'll have quite an advantage in finding a great emerging market.