How do you properly research rental markets?

Question

Good morning,

So the last two threads I created had to do with how to make the numbers work in A/B class neighborhoods.  A few people mentioned the research side of things, supply and demand, job growth, new business in the area , new roads, etc etc.

My question is then, how do you find the answers to these questions.  Are there any good analytics programs out there for RE?

Tj Hines · Answer

@Douglas Gratz there are a ton of free resources available online you can use.

City-data.net   Census.gov    bestplaces.net     crimespot.com  there are many more available. I made a training tutorial for my team to use to research markets that are not in our backyard. Inbox me and I will send you the link

Tyler Gibson · Answer

@Douglas Gratz Google what you are looking for. You should be able to find all the data you are looking for. I have not found a consolidated program, site, or software that would be a one stop show for every market question I would have. I almost exclusively invest here in my market because I know it. I live here I watch the news I read articles about he economy and growth and developments and jobs and all that jazz. When you hyper focus to your local market it is much easier.

Douglas Gratz · Answer

Wow, great information. When I was looking up what it meant to absorb supply, @Todd Dexheimer I came across this from Investopedia , so thanks for leading me to it. To share...“

Influence in the Real Estate Market

For example, in market conditions with low absorption rates, a real estate agent may be forced to reduce a listing price to entice a sale. Alternatively, if recognizing the market has a high absorption rate, the agent can increase the price without potentially sacrificing demand for the home. The absorption rate is also important for buyers and sellers to follow as they make decisions on the timing of purchases and sales.

Additionally, the absorption rate can be a signal for developers to start building new homes. During market conditions with a high absorption rate, demand may be high enough to warrant the further development of properties. Meanwhile, periods with lower absorption rates indicate a cooling period for construction.”

I have been looking for some measures to use if I ever decided to build . Again thanks guys!

Todd Dexheimer · Answer

1. Job creation Jump on to the internet and type in the cities you identified as potentials and type in keywords with “job growth,” “new companies,” “employment data, “future growth.” You can may also find a metropolitan council, chamber of commerce, etc report. Other good sources are your local real estate brokers or the national brokers such as Marcus and Millichap, CBRE, Colliers, etc. Go on to their web pages to find detailed reports of the market you are interested in. The Bureau of Labor Statistic will have great information as well as your local government branches.

2. Increase in population: Again talk with Real Estate brokers, do a demographics search, go to the crime maps, talk with local government to find out their economic plan and redevelopment zones. Lastly, look for areas labeled “Art’s districts." Check out the Census Bureau for statistics on population.

3. Buildings coming to market and permits pulled: Be sure that the city you are targeting can absorb the future supply. Go to the city website, call the local building department and go to your local business journal or google "crane watch" and the city you're investigating.

4. Government planning. What is the city and non-profits doing to bring in business? What types are they targeting?  Go to the local municipality website, call the department of Economic Planning and read the local business journal.

5. Affordability for the tenants is a key factor in picking a market in my mind. You can search online for housing affordability in your markets and also look at the median rent vs the median income. If the median income is more that 66% of the median yearly rent, then you have an affordable rental market. If renters are forced to pay more than 1/3 of their income for rent, then your high rents could be in trouble when the economy struggles.

6. Absorption rate and vacancy rate. The important factor in this is looking for a vacancy rate that is decreasing, meaning people are moving into the buildings vs. moving out. Brokers are a great source for this information along with property managers. CoStar and REIS are also great websites.

8. Opportunity to purchase. You want to find markets that have inventory for sale. This can be done by looking on LoopNet, CBRE, Colliers, ARA Newmark, Marcus and Millichap, etc websites. Also, good practice is to call several brokers and ask them how many buildings they sold last year and how many sold in the market (Specify the unit count). You can also get a CoStar or REIS report.

This article will give you what you need: https://www.biggerpockets.com/member-blogs/10145/83188-finding-emerging-markets

Jacob Sampson · Answer

I also invest exclusively (for now) in my own market.  There are just so many advantages, I have a close relationship with a local banker.  I have called him up on a Sat to look at a property I wanted to make an offer on and he showed up with my pre approval letter.  Deal was signed before it even hit the market on Monday.  I have a great working relationship with several local realtors so that I get the first look at properties like the one in my last example.  Anywhere in town I immediately know what the property will rent for so i know how much I can pay.  I know exactly which areas to avoid.

I will not always be able to stay in my local area, but there are SIGNIFICANT advantages to intimately knowing your investment area.

I wouldn't know how to research remote locations.  its hard to know what is true or false or current when using the internet for research.

Trevor Ewen · Answer

@Douglas Gratz

@Todd Dexheimer hit the nail on the head with a strong list. I would add one more for your consideration:

9. Political & Regulatory Risk You are in Pennsylvania, which is a good middle case study here, because it borders states on either side of the spectrum. Your northern neighbors love regulation and taxes, your southern neighbors are more of a mixed bag. I often see people compare two markets with very different regulatory environments but similar numbers as if they are a 1-1. This is a dangerous game. Beyond state and local laws, federal tax policy will have an effect on property values (we were working on a flip in Connecticut when the tax bill passed, we saw an immediate effect). Additionally, you have to factor in the cost and time of evictions and any other permitting matters.

Douglas Gratz · Answer

I would really love to create a model. My professor said she’d help if I could get the data. Definitely be a useful tool

Art Perkitny · Answer

@Douglas Gratz

Data sources such as the American Community Survey, also known as the annual Census, can help you judge a location by considering key market indicators, which I list below.

Some of the metrics that I find valuable to understand are:

- Population Total

- Population Age

- Home Values

- Household Incomes

- Rental Vacancy Rate

- Homeowner Vacancy Rate

- Poverty Rate

- Educational Attainment Rate (High School/GED & Bachelors)

- Number of Housing Unit

- Rent to Income Ratio

- Rent to Price Ratio

- Population on SNAPS (supplemental nutrition assistance program) percentage

- Property Tax Rate

- Median Age of Buildings

- Number of Structures by Units (SFR, Duplex, Triplex, Quadplex, etc...)

- Median Rents by Number of Bedrooms

- Unemployment Rate

- Employment Sectors Percentages

- Number of Building Permits Issued

- Foreclosure Rate

- School Ratings

- Crime Statistics

Also take into consideration the direction in which each of these market indicators are trending. This will better help you get an understanding of not just where market is today, but also where it may be heading.

Let me know if you have any other questions, hope this helps!

Douglas Gratz · Answer

Thanks all! When I was in college I was taking an analytics course.  One of very few courses that ever really had top use for me.  If only I could collect the right data to make prediction models and the like.

How do you properly research rental markets?

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