Best places for market research…

[Rich Emery]

I’m looking to aggressively grow my portfolio. I’m pretty mobile and able to travel (if necessary) to different markets as needed.  I’m interested in locations / markets that have a lot of upside and are trending towards property values being much higher over the next 3-5 years.  

what are the best resources to dig up data to see trends and where market values are looking to appreciate considerably?  My other properties are cash flowing nicely but I’d like to invest in an area where I can bet on equity going up considerably.  

Looking fir any and all advice!  

[Eric Fernwood]

Hello @Rich Emery,

Excellent question. When faced with an ambiguous situation, I start by establishing an end goal. Based on what you wrote, I believe you have two primary goals.

• A dependable passive income that outpaces inflation and you will not outlive.
• Equity accumulation to enable additional investment property purchases minimizing the total capital required.

If these are your goals, I recommend following the process illustrated below.

In this post, I will only discuss location selection. However, after the location, you must also select the right tenant pool and the right properties that attract those tenants. There is a proven process for tenant pool selection and property selection. If you want information on these processes, let me know.

Location selection is where you need a lot of national-level information. I will briefly describe the critical selection criteria and provide some sources for the information.

Key selection criteria:

• Rental income increases faster than inflation - Unless your rental income increases faster than inflation, you will not have the additional dollars you need to maintain or increase your buying power.
• Jobs - A rental property is no better than the jobs around it. Unless the quantity and quality of jobs are increasing, the location will decline.
• Population - The location will decline unless the state and metro population increase.
• Operating cost - Every dollar you spend on overhead is a dollar lost. There are two types of operating costs. Direct costs and indirect costs. Two major direct costs are property taxes and insurance. Indirect costs include rent control, the inability to remove non-performing tenants, and similar regulations.
• Crime - Any location with high levels of crime are poor investment locations.
• Minimum population size - I recommend only considering metros with a population of 1M or more. Smaller cities tend to be too dependent on a single industry.

Below are the information sources I recommend.

1. Population size – Wikipedia
2. Metro and state population growth – Wikipedia and PewTrust
3. State income taxes – Google
4. Crime – Neighborhood Scout - The 100 most dangerous cities in the US. I would not choose any cities on this list.
5. Property tax rate – LendingTree has a good comparison.
6. Pre-COVID appreciation - COVID distorted price and rent growth. Some areas that performed well for the last two years are declining. For example, below are ten cities that performed during COVID but are now falling. When you take inflation into account, the drop is even greater.

Where can you find pre-COVID rent growth? This data is difficult to obtain except through a local realtor who understands investing. However, rental trends follow price trends, with a two to ten-year time lag. So, if you look at appreciation rates for the years before 2020, you will have an excellent indicator of what was happening with rents. The best source I know of for historical price data is Zillow Research. If properties were not appreciating at least 6% before COVID, I would eliminate the location from consideration.

Summary

If you evaluate potential locations in the order specified, the shortlist will contain cities worthy of further investigation.

Let me know if you are curious about what is next in the process.