4 Steps to Pick Your Market - Don't Overthink It

How To Pick Your Market Today

As a newer real estate investor, one of the most intimidating tasks was picking a market. There are almost 400 major metro markets in our nation. So how does a newbie pick JUST ONE? Or do we have to pick just one?

Here's one train of thought: be an expert in one market. Build a team, and niche down to that singular market. But here's another train of thought that I adopt: learn how to analyze a market, learn how to build a team, and take that same model to ANY MARKET. Hmm...is there a right or wrong way? Not so sure. 

Here are 4 steps you can follow to pick your first market (I've borrowed some of these items from different investors, and consolidated them into one list that helped me buy 12 properties in just 5 months):

1. Population Requirement - I don't necessarily look at population growth as criteria. Population growth would lean into the strategy of appreciation as an investor would identify a growing market. But any investor worth their salt will tell you that cash flow should be your primary goal. 

The goal is simply this: we want to identify a market that supports enough people in a city to leverage rental demand. Our population minimum is 100,000 people.

2. Drive to Downtown - Because major metro markets are priced ridiculously high, we don't really look in these areas. We look at smaller sub markets just outside of these major metro markets. When identifying these smaller submarkets, we look at a 30-40 minute drive.

I live in Northern California: the home of all tech. We host Silicon Valley and San Francisco; easily identified as one of the major tech hubs in the world. But homes in Silicon Valley and San Francisco typically START AT $1MILLION. Needless to say, I don't live there 😂. I live about 40 minutes away from San Francisco. Because of my proximity, I benefit from the market appreciation of San Francisco without the price tag of San Francisco.

When we target these areas, we are able to leverage the growth and appreciation of a major metro market without taking on the costs of living in that market. 

3. Job Diversity - I know you were waiting for this one when I mentioned population growth. My criteria is very simple, and something I learned from Sean Terry. In every market that we select, it has to have 2 out of the following 3 employers: military base, major hospital, or university. It does not have to have all 3; just 2 out of those 3.

Job diversification is important in order to establish stability in a market. We saw this in Detroit's auto industry collapse. As jobs were outsourced to Canada and Mexico, residents suffered from job loss. So make sure to look for this type of major industry diversity. 

4. Potential to Retire - This is not so much a criteria, but a benefit. I do this to hedge against any issues of vacancy. If I can't place a tenant, I'd rather hang on to a unit and live there, than flipping it. Additionally, as I prepare for retirement, I'd rather have a home to live in free and clear RIGHT NOW.