Finding Our Market: A Census Data Dive

[Chris Salvato]

I am hoping this post will help some others on here who are trying to make decisions on where to invest.

My wife and I are looking for the market we want to tackle, and this post will describe our process.  Part of our process included using my skills as a developer/data analyst to pull US census data for every county in the USA.  Here is a link to that data (sourced right from the US Census Bureau) for your own perusal:

https://cl.ly/3w0i0s3V2o3m

This data is free to the public but VERY hard to access. The government doesn't really know how to make anything easy.  For interested parties, the rest of this post is the story of how we are using this data, and continue to use this data as we try to find our market.

Back Story

A few months ago my wife and I decided to get into real estate investing and started doing a ton of research.  We determined that our end-goal is to have a portfolio of rental properties that generate $10k/month in cash flow within 5 years, with our stretch goal being $20k/month within 5 years.

To kick off our entry into real estate, we decided our first purchase would be a "house hack" where we live in one unit, and rent out the other(s) in a duplex, triplex or quad using an FHA loan on our first deal.

Right now, we are fairly mobile and can move just about anywhere.  We are looking at this as an advantage, because we can pick any city in the country to move to. But it's also been an Achilleas Heal because it's easy to paralyzed by options.

To narrow down our options, we want to move to a place with a better-than-average chance of success, that is also a place we really want to live (i.e. more on the urban side, less rural.  We don't like a rural life).

So rather than throwing darts at a map, we decided to look at data in the entire US, and set a criteria.  Any areas that met that criteria would be worth visiting, assembling a team, and moving.

To do that, I needed to look at US Census data.

Our Criteria - What are we looking for?

Since a big part of my career has been analyzing data, I know it's a lot easier to analyze data when you go in with a particular set of questions or criteria you're looking for. 

Here are the things we wanted to look for, which drove what data we needed to pull, and what we calculated:  (Maybe we are looking at the wrong things?  Input is welcomed...)

• 5 Growth
• Low value of property (so it's easier for us to enter the market)
• High cost of renting
• High percentage of units being rented vs. owned
  
• High percentage of renters renting property with 3x income
• Low vacancy rates
• Low unemployment rates 

Of these metrics, we couldn't get a few from the census...at least not yet.  Those we could get are bolded above.  Those we couldn't (or haven't found a way to get it yet) are not bolded.

Our Criteria - What are the numbers?

We went in not knowing what a good number was for a lot of the metrics we were looking at.  So we looked at the data set overall and figured what a good value was based on national averages and regions that we knew we liked.  That led us to the following numbers:

• 5 Year Growth > 0 (the bigger the better)
• Gross Growth > 10,000
• Total Population > 100,000
• Median Home Value < $350,000 (which means a good deal would be ~$245,000)
• Must be in a state we want to live in (e.g. TX, NY, PA, VA, MD, CO, CA, NC, NJ, HI, FL, GA)
• Rental Vacancy Rate < the national average + 1%
• Unemployment < the national average + 1%
• Low unemployment rates 

Navigating US Census Data

Naively, I thought US Census data would be easy to access.  That's kind of stupid, because nothing provided or done by the government is easy.

For anyone wanting to look at US Census data on your own, go to http://factfinder.census.gov/faces/nav/jsf/pages/guided_search.xhtml and poke around for a bit.  

(I am not really in the mood to type up a 10 page article on how to use the census. It took me about 3 days to figure it out.  If people are interested, I may write up a guide or create a video for you all.)

The long and short of it is that you pick the metrics you are interested in (say, total population) and the geographies you are interested in (say, counties, states or places/cities/towns/villages).  Then you can generate a report that has those metrics for that area.

Unfortunately, the US Census only has a few reports that pull various kinds of information together (e.g. Population and median home value).  If you're an uber-nerd like me, you need to pull the different data sets out for different metrics, and cross reference the data based on geographies...but that's a topic for another time, (and likely just for data nerds like me).

In the end, we were able to pull various data sets that shed light on various areas.  The attached file above is for counties, but we pulled county and ZIP code data, so we can get a higher level and more granular view at different areas.

From those data sets, we were able to pull/calculate:

• population in 2015
• population density
• gross growth
• growth 5 years
• percent white population
• median home value dollars
• median owner costs with mortgage
• median owner costs without mortgage
• median gross rent 2014
• percent units rented
• rental vacancy rate
• home value to income ratio
• mean income dollars
• unemployment rate 16 and over
• percent renting for at most one third income

Narrowing Down

When we ran all the US counties through the criteria only 66 of 3140 counties met our criteria.  Talk about narrowing down!

But 66 is still too many to look into at once.  We really need 1 area that we can focus on and blast through.  So our next idea was to take all of the counties that match these criteria and plot them on a map.

Once they are on a map we will be able to instantly see a few things:

1. Are these places we actually want to live?  (e.g. are they near cities or really freaking remote?)
2. Are multiple counties really a single area? (e.g. are we looking at 10 counties all around the Dallas area?  If so, we can just look at Dallas as a whole, and start our search in the counties/ZIPs that look most promising)

These are the maps we created:

Florida

Missouri

Georgia

Maryland

North Carolina

Virginia

Pennsylvania

New York

Colorado

Texas

After looking at these maps, and reflecting on where we would want to live, we narrowed it down to the following 5 (in order of personal preference):

• Denver Colorado
• The San Antonio -> Austin TX Corridor
• The Washington, DC to Richmond VA Corridor
• Southern Maryland
• Raleigh-Durham, NC

Next Steps

We are still discussing what our next logical step is...but we are fairly certain the next immediate step is doing a more qualitative analysis of the areas: reading business journals, reading local newspapers, investigating school and community development initiatives, investigating school quality, etc.

With that qualitative analysis, we will likely eliminate another 1-3 cities, then plan to build our team and network with local investors 

After that, we will build our team in those cities and plan a visit to build relationships and vet properties.

I hope that revealing part of our process helps at least one person, even if it's just learning something about your market from the HUGE CSV FILE I posted.

Do you agree with this process? Disagree?  Too much thinking?  Looking at the wrong stuff? Looking at the right stuff? :)

[Spenser Murphy]

There's nothing wrong with doing your own data mining. Are you using a GIS platform to map the data? I'm a GIS analyst (cartographer). I've worked extensively with Census data for the San Antonio, TX area. I can't remember if the current census data still has average travel time to work. Regardless of the mode of transportation, humans don't like average commutes longer than 30 minutes. Number of vehicles per household might be getting too specific for a national survey. Fewer vehicles means a property's proximity to public transit is important. Don't forget an areas Walk Score. I'd love to talk more about this subject with you.

[Spenser Murphy]

If memory serves me, the Census should have the categories of employment. Government, institutional, military sectors are largely permanent employers. San Antonio is based on these industries.

[Chris Salvato]

@Spenser Murphy I am using R to analyze the data, and they have a few packages for taking names of counties and plotting them on maps.  Not a huge expert on generating the maps - it was the hardest thing for me to do in the entire analysis.  

Would love a deeper dive on it with you though, since the Census ZCTAs are not the same as ZIPs, which presents a challenge when looking at things on a more granular level.

Interesting take in the data on commuting.  Didn't even realize it was available.

I just saw that there are a whole host of business related data sets that I can pull (e.g. number of businesses in an area, business growth, total payroll, etc.) so will have a look at that and pull it in to add to the criteria along with commuting data.  Really awesome idea!

And yes, happy to connect with you about this in more detail on a call. 

[Spenser Murphy]

The Census publishes the polygon layers (think city, state, or county boundaries, etc) for the different geographic units. They don't come with the demographic data. You join the CVS file to the layer. It's still a little difficult, but not like grinding in R. I know variables thin out as you go to smaller units like census block groups. You can download freeware and open source GIS platforms to view and join the tables to geometry. If you go this route, use geodatabases. They have a smaller foot print and much more efficient than shapefiles.

You can find the geometry by Googling: US Census TIGER

[Leland Barrow]

I really enjoyed the post. I think you are light years ahead of the competition that listens to podcasts and decides that following old people to Florida is the money train. Here is a formula for that...

Baby boomers retire to Florida driving up demand until baby boomers die and drive up supply. At least Arizona has jobs other than hospitality and entertainment that tend to nose dive when people have to pinch pennies. I am glad to see that you eliminated the riskiest place in the US to invest in. I will be buying a cheap house to rent out until my own retirement in Florida when the current boomer bubble pops. 

People and jobs drive markets and I think your data captured most of that. San Antonio is a great city. I see it as not knowing what it wants to be, but is becoming something special. San Antonio has great diversity and a ton of potential. Down town is developing character. The north side is growing quickly as Austin and San Antonio are closing the gap. I consider it the blue collar Austin and the most modern day image of America. For a very diverse city people relate to each other with less tension and nonsense than in other cities. As for investing it is probably the no-brainer on your list if you factor in sheer affordability. 

Austin is Austin it is a city that is thriving on young professionals. It is the capital and has a huge tech industry. That is a powerful combination with jobs. Before I moved to Texas I was told that Austin is the one place that all Texans would live if they could. Having jobs and being an entertainment capital doubles down on growth. When they built the 130 toll road several years ago it was a ghost town on that road. Now that toll road has bumper to bumper traffic at times.

New Braunfels and San Marcos are quickly becoming the choice of commuters. New Braunfels has exploded. Drive through west New Braunfels and go spend the day in Gruene Texas and you will see why people want to live there. San Marcos is a college town with enrollment that has gone from something like 35,000 to soon being 75,000 students. They are revamping their football program, raised tuition and are looking to be considered the more affordable alternative to the University of Texas. San Marcos has its own charm and is a stones throw away from Wimberly. Wimberly is the artful aunt of the central Texas corridor. A small community that brings in tourist from other local cities. It is over-pouring with charm and will only suffer if they sell out to the corporations that are salivating at growth along the west central Texas Corridor.

If you could live in a place where you are 3 hours from the beach, less than 20 minutes from multiple large rivers, less than 20 minutes from large lakes and could choose to live in a tech heavy city, a blue collar salt of the earth city, a college town, or a town of artists, or a town that celebrates true Texas charm and all growing like crazy, why would you say no? I can buy a house on a river for 80k right now, in a town that has seen 20% growth in the last ten years. I can buy lake front lots on a lake 20 minutes away for about 30k.

I travel to Austin and San Antonio every week. I can walk down the street and go tubing down the river with the San Marcos college kids. I can sit in my back yard and drink beer while feeding the deer that come by every night to hang out with me. All while being five minutes away from I35. 

If you have never been here then come do a day trip and start by eating breakfast  in downtown Austin then just drive to Wimberly , then to San Marcos, to Gruene, to San Antonio all without getting on I35. Spend the rest of the evening on the Riverwalk. When you drive back to Austin look at the growth, and realize not long ago most of that was not there. 

One company has built twelve restaurants along this corridor in the last four months. HEB which is the big boy in this area just bought land in San Marcos surrounded by farms for a Super HEB. Amazon is less than a mile away from that land with a new distribution center. Corporate chains are building as fast as they can. You want to know where to invest follow Amazon and HEB. 

The only other city that I would personally choose is Raleigh-Durham. 

[Rick Pozos]

Chris, WOW, really??

It seems that you are taking after the government. You are spending way too much time on this stuff. Pick a city where you know someone or you have visited and you really like the area. Start marketing there.

You need to find distressed sellers. That is who you market to. You have to buy a property that is cheaper relative to other properties in the neighborhood, not county, based on the same approximate size and style as your target property. When you find one that is 20-30% cheaper than others in the area minus repairs, you buy it. 

YOu will never find the perfect market or the perfect house or duplex or whatever. You find a good one, make some money and move on to the next one. Some will be good some will be real good and some will be a pain in the butt. Keep going. Dont get bogged down with data because data is always changing. Unemployment is changing day by day, month by month. If you find the perfect place to invest in, it will change next month.

If you can not change the Uber-nerd thinking (your words not mine) that you have, you will never buy 1 investment property anywhere.

[Matt Marino]

Great post @Chris Salvato!  I think this type of data analysis is a great way to find a place to invest/live, but that may just be my own nerd bias as a GIS specialist.  I know a lot of people will say "stop wasting time with data analysis and buy a house," but I just think that may be a result of their inability to see patterns in data. I know I know, analysis paralysis and all that. But some of us may have to time to do something like this while we are saving up for that down payment.

[Matt Marino]

Also, feel free to contact me if you want to put my GIS skillz to use. I'd be happy to help out.

[Chris Salvato]

@Leland Barrow Thanks for all that awesome information!

@Rick Pozos I understand your sentiment, but I disagree.  I can see how you might be wary that I am getting paralysis by analysis or thinking too much – but looking at data and understanding opportunities/the big picture is where I have a track record of success.

In my past, the times when I have been most successful is when I evaluated a market, understood it completely, then took massive action to dominate it. It's this process that has led to the passive income I currently generate, and a business I launched that was acquired.

Similarly, when I have just jumped in willy nilly and started doing things randomly (like randomly buying property or sending out marketing pieces), I was met with years of failure and pain.

So, in short, I appreciate your sentiment but, trust me, this is part of my action taking process. If I am going to stick a stake in the ground, it's going to be fertile.  I'm under no delusions that I will find the "perfect" market.

[Chris Salvato]

@Matt Marino Terrific!  Thank you for the offer on your GIS skills :D

[Spenser Murphy]

I have three more observations to add. They aren't data mining related. If you're looking at Florida, you might ponder how warming relations with Cuba might affect the real estate market. It could be irrelevant. In my readings and podcasts, they mentioned contacting the local chamber of commerce for economic data. On a BP podcast, the guest subscribed to local business journal stay current on future development and economic trends.

[Dawn Brenengen]

@Chris Salvato  Wow!  That's a lot of thinking and analyzing you did there  :)  

I'm glad to see my fair city made the cut.  If you want to know anything abut it, feel free to reach out!

[Eric Delcol]

Hi Chris,

Thanks for this post.

We are also deciding on a new market and your csv file helped us narrow down the list. Some of the areas you came up with were the same as ours, however, I think we have different criteria and that's why they weren't all the same.

Did you end up choosing one of the ones you listed?

[Albert Zheng]

Hi @ChrisSalvato, 

I just wanted to say thank you for putting this together. I think what you are doing is very informative in nailing down a region which should satisfy your investment criteria. My criteria will be different than yours due to the fact that I'm not constraining myself to live near the property. However, I definitely plan on apply similar metrics for the categories you listed. I was also looking at weighting each data set relative to each other to come up a total value score. Did you put more value in a metric vs another? For example, would you assign the median value of home the same value as unemployment?

[Chris Salvato]

Hi @Albert Zheng!

I hit a point in looking at the data where I just wanted to start looking at properties, so didn't mathematically weight the different criteria.  We did have some things that were more important (e.g. we felt low vacancy was important to us), but used our intuition to gauge when we had a good mix.

Since this post, I have also put in additional disqualifiers for individual properties. That includes things like bad schools (according to greatschools.org).

As you mention, our selection was also swayed by emotional factors - namely, "would we be happy living here?"

[Alan Fischer]

@Chris Salvato this is a really interesting discussion, and 8 months later, I'm curious what route you ended up going.  How did the data compare to what you actually found when you started looking for properties?  As someone looking at properties in many of the same places, a significant factor I don't see in your analysis is property tax.  How did you account for difference in operating costs or cap rate between the markets?

Most importantly, (where) did you actually take the plunge?

[Igor Avratiner]

Thanks for sharing your decision making process and data you uncovered. Also the folks who added the qualitative comments really made this an interesting read. Please share your update and any other data you uncovered in the process that you are willing to share.

[Chris Salvato]

@Alan Fischer Thanks for asking for an update – almost forgot we posted this here.

8 months ago, shortly after this post, my wife and I decided to pursue property options in the Denver, Colorado area.  

Our strategy was to buy our first property with an FHA loan, then another property a year later with our remaining capital.

We forged a relationship with a great real estate agent in Denver named Dale McConnell with a company called StepsRE.  We told him we wouldn't be looking to buy for about 8-9 months, and he was great about it.  Really put in the time to work with us.

We spent those months getting regular updates about new listings, and learning how we would work together when the time came.  We thought that time would come when we found a property where the numbers worked, and once we understood the general feel of the market.

Fast forward to today...

The analysis via census data was great with one exception - home prices change *rapidly* especially in a hot market. Using median home values from even a few years ago to gauge affordability was useless in this exercise.  

Most home values in the Denver metro area skyrocketing, and those properties where the numbers are even remotely close to working are in really rough condition. A small subset of these are probably flipping opportunities, but that's really hard to gauge long distance.

So, after 8 months, we have put offers in on a few homes where the numbers have worked - but we were out-offered every time.

I still think Denver is a great place to purchase - because of my analysis and some qualitative reasoning - but my general feel is that the market is too hot for the MLS.

We are going to be contacting wholesalers soon to see if that's a better path for us. If not, we might have to wait for the inevitable crash before we buy in Denver; or change up to another city from our list here.

[Rick Pozos]

Please, please, please go up in the posts and re-read my post again. Vote for it if you think that it has some meaning and value to you. In the 8 months that I posted above, I have helped over 10 families with properties that they did not want anymore or could not afford to keep. Again, I will say that you have to just go out there and DO IT!!! Because 2 or 3 or 20 years will pass you by and you will not have done anything. The reason that I say that is because I worked for a property manager, developer, I worked in sales, I have a finance degree and I was still scared. It took me over 15 years to start doing something. I dont want that for others. You have to get out of your comfort zone and make it happen. 

The definition of insanity: Doing the same thing over and over and expecting different results.

I read Grant Cardone's Book The 10X Rule. Blew my mind. Plus I read a new book every month or two to keep things fresh in my mind.

[Chris Salvato]

Thanks Rick. Your advice may be a little misplaced.

We have been out there and "doing it". 

1. We investigated areas methodically

2. My wife has gotten her Real Estate Agent's license and has been practicing in Brooklyn.

3. We built relationships with our team in our locale of choice.

4. We have been evaluating hundreds of homes over the course of the past year.

5. We put offers in on properties, sometimes way out of our comfort zone, and nothing has worked out just yet.

Our main strategy has been to explore the MLS. In this market, I don't think that's really a great strategy.

So we are going to have to change up and look into buying from wholesalers (since we aren't in a position to wholesale remotely, even though I have 5 years marketing/advertising experience).

If you are giving this advice to others, I feel it's dangerous. Seems like a blanket recommendation to "go out there and do it!" and "TAKE ACTION!" without considering what we've done. Just because we haven't purchased a home yet does not mean action was not taken.