From Columbus to Albuquerque - Challenges of market research

[Saleh Riazi]

As we are moving to scale up our investment portfolio, me and a few of my mastermind group members are back to the drawing board researching markets and are already faced with the challenging task of determining which market fundamentals to focus on. We decided to share this with the BP Community and get some additional thoughts and guidance. Some of the attributes that we are looking at are:

Economic factors: job market data such as change in the employment and unemployment rate, mean wages in the past few year and total and percent people employed in each market. As expected, this factor made the top of our list, and we are spending more time evaluating each markets economic expansion and job growth. Census.gov and bls.gov can provide some good and reliable data for these attributes.

Housing affordability index, another important data and can provide similar information as the rent to income ratio which can be used to determine the capacity of a market for any future rent increase. This attribute is also readily available on census.gov.

Real Estate data: such as new listings, closed transactions and median number of days on market which can provide a good measure of the flow of transactions and the competitiveness of a market. This information is also easily accessible using the annual or quarterly reports of Association of Realtor for each market.

Landlord friendly markets, another very important factor to look at, as this can make a big difference in items such as the cost and length of evections process, rent increase, deposits and/or the utility expenses that the landlords are responsible for. It seems like almost all websites have more-or-less consistent data across different states.

After listing to the BP podcasts 568 with Ivy Zelman we added the new construction permits data to our table as well. In our opinion there are two insights that this information can provide, one being the desirability of a given market for larger investment firms and hedge funds as well the possibility of shrinking future profit margin in that market. This information is also available on census.gov.

Last but not least, Rent-to-price ration. This seems to be the hardest one to find. There are a few different websites and resources that can be used to get this number and unfortunately there are some significant discrepancies across these websites. We think one of the reasons for this is how this number is being calculated. For example, using SFH versus MF properties or number of rooms in each property as the rent-to-price ratio of a 2-bed SFH could be different than 3-bed MF properties. Looking for some insight from the BP community on this and other factors listed here.