Search for Emerging Markets Using These Key Indicators

Emerging markets have always been a gold mine for many people in the multifamily sector. Still, it pays to use a few key indicators in finding markets where high returns are possible.

For some time, places like Dallas, Austin, Houston, San Antonio, Denver, Salt Lake City, Atlanta and Orlando among others have become attractive locations for multifamily investing. Not only do they show healthy job growth, but these places are taking in large investments from both the private and public sectors. Overall growth has been steady in these emerging markets, so you will need to take advantage of these positive numbers while you can. The Markets are correcting with the recent hikes in interest rates. Moreover, the overpaying for the assets is going to stop and I predict a downward correction in certain markets in early 2019.

When it comes to determining emerging markets, nobody would advise investing in “hot” markets where there’s rapid development. Instead, it’s best to focus on the market cycle and see where a city is located in terms of supply and demand. The biggest mantra to follow is JOBS! JOBS and JOBS! There are two phases to this:

Buyer’s Market 1

This is when the local housing inventory surpasses demand. This is often due to such factors as slow job growth, a high unemployment rate, low wages, and lack of infrastructure investment. Construction is stagnant, and this is because many people simply can’t afford to buy houses. The upside to this is that prices in both single-family and multifamily markets are low, which makes for an opportune time to buy.

Buyer’s Market 2

As investors begin to flock a market in the first phase, construction will suddenly pick up. The influx of capital will eventually cause the market to absorb oversupply. Investors will purchase and rehabilitate properties, causing market values to gradually rise and DOMs to shorten. The job market will also experience an upswing, hence driving demand towards an uptrend as well. This will also result in higher net operating income which is a great reason to start investing.

By looking at these two phases, you will be able to create an effective investment strategy that rakes in a great cashflow. But how do you know if it’s the right time to acquire an asset in an emerging market? This is exactly where these key indicators come in. Check out www.city-data.com and www.census.com

1. Construction

You will know that a city is developing when there’s high activity in the construction sector. This could only mean that there’s also a high-demand for housing and, soon enough, the market will transform into a Stage 1 Buyers’ Market where there’s an oversupply in inventory.

Where to get a report?

You can start by requesting forecast reports from local building associations and departments of development and urban planning. You can also work with academic institutions and the local census boards that will provide you with what you need.

2. Household income

If there’s a rise in household income, then the purchasing power of the local population also rises. This, in turn, drives property values up as more and more people are able to pay rent, leading to increased NOI and, more importantly, cash flow.

Where to get a report?

You can obtain insights on consumption and spending from the local census bureau as well as research institutions. Another way to get a report on household income is to approach the local chamber of commerce and ask for a copy.

3. Vacancy Rates

Obviously, you would invest in markets where the vacancy rates are down. In other words, many people are renting out. Properties, in this sense, are generating consistent income, which makes them highly profitable. For this, it’s important to buy in an absorption market where vacancy rates are decreasing.

Where to get a report?

The best place to get a report on vacancy rates is the local chamber of commerce. You can send a formal request indicating that you are an investor. You can also ask local brokers and agents for insights into the current vacancy situation.

4. Demographics

Finally, it’s important to map out the market and see which segments that are renting out the most. For the multifamily sector, you may want to consider these factors that provide the best numbers in terms of potential renters:

●Higher female to male population

●Higher population of young and old versus middle age

●More singles versus married couples

●Smaller families versus larger families

●Higher amount of renters versus non-renters.

Where to get a report?

Of course, you can get a demographic report from the local census bureau, though asking local realtors can also help.

I hope these key indicators will help you find the markets you should be investing in.