Out-of-state investors: What metrics do you use to evaluate real estate markets for long term rental properties?

[Greg Johns]

Hi All,

I live in the SF Bay area and because of the crazy real estate market here, I am looking out-of-state to restart my real estate investment portfolio.  Because I am not investing in my local market, I am going to need to come up with a systematic and objective way to evaluate other markets to determine which markets have the characteristics that will generally be favorable for the type of real estate investing I want to do.  

This analysis will help me "green light" or "red light" different markets.  For the markets I determine are "green light" markets, I will then start a dual parallel-track process of checking investment opportunities to see if the numbers work (generally speaking) and contacting and interviewing property managers to get their take on the market and begin building out a potential team of local "foot soldiers".

The mind dump of metrics I came up with for my analysis so far are (in no particular order):

• Recent Population growth (2010-2013)
• Median gross monthly rent (2013)
• Median gross monthly rent 3-year change (2010-2013)
• Vacancy rate (2013)
• 3-Year change in vacancy rate (through 2013)
• Rent as % of income (i.e. median monthly gross rent as a fraction of median household income)
• 3-Year change of rent as % of income
• % of households that are renters
• 3-Year change in % of households that are renters
• Median price for all SFHs (December 2014)
• 3-Year change in median price for all SFHs (through December 2014)
• Median price for all 3BR units (December 2014)
• 3-Year change in median price for all 3BR units (through December 2014)
• Median price for all 2BR units (December 2014)
• 3-Year change in median price for all 2BR units (through December 2014)
• Median gross annual rent (i.e. monthly gross rent * 12) / Median price for all homes - I know I am kinda mixing apples and oranges here, but it's the closest I can get using available objective data
• Unemployment rate
• 3-Year change in unemployment rate
• GDP growth (time period depends on data available)
• Job growth (time period depends on data available)
• Household income growth (time period depends on data available)
• Proximity to major international airport (i.e. how easy will it be for me to get there?)

My plan is to spread this data for about 15 different metro areas and compare the results.  Based on those results, I'll identify my top 5 metro areas into which I'll do more research about specific investment opportunities.  My investment strategy is to buy and hold rental properties long term for monthly cash flow and this will be the basis for which I identify my top 5 metro areas.

Can anyone think of any other metrics I should look at when evaluating different real estate markets?

Thanks!

Greg