How to | Real Estate Investing

5 Important Factors to Evaluate a Market for Real Estate Investing

Market selection is arguably one of the first and most important factors in any investor’s journey. If you make a bad call – you could lose thousands of your hard earned dollars, not to mention countless hours of your life! No one wants to go through that. In this article, you will learn: 

  • how to go about selecting your top three markets
  • what metrics to look at and where to find them
  • how to analyze them
  • other factors to consider 

In order to mitigate the inherent risk that comes with entering a new market – you need to equip yourself with peace of mind. You need data. Several metrics and considerations can indicate positive or negative underwriting for real estate investing purposes, helping you decide if the market in question, the “subject market”, is a good fit for your intended strategy. Here are some steps in the evaluation process:

Step 1: Select your Top Three Preferred Markets

While it’s exciting to look all over the US for opportunities, you’ll quickly feel yourself getting analysis paralysis before you ever invest. Instead, start with whatever feels familiar to you. Come up with a short list of three of your favorite cities and go from there. It doesn’t hurt to look up areas where people are  moving to and way from – moving companies are a great resource for that.

Step 2: Evaluate Metrics in that Market

At Tii, we are fortunate to be located in the Triangle area of NC, a notoriously strong and stable market. But there are certain metrics we would look at to underwrite the potential of a new area, keeping in mind that we are in the residential construction and development space, as well as property management. We look at the following:

  • Population Growth – Evaluate over a 10 year period: is it on a trajectory towards growth or flattening? How does it compare to the national annual rate? 
  • Job Diversity and Workforce – How many large corporations vs. entrepreneurial startups? 
  • Government and Educational Stability – Are regulations inhibiting growth?
  • Average + Median Household Income – what do these jobs pay / what can people afford?
  • Average Rent / Rent Growth – Evaluate over a 10 year period. What are people willing to pay in rent? Are average rents rising, falling, or flat?
  • Median Home Values – Evaluate over a 10 year period. What are people willing to pay to own a home? What are average rents? Are they rising, falling, or flat?
Here are some sources from which to pull the above data:

Step 3: Compare Data to Positive and Negative Industry Indicators

Gather all research data into one spreadsheet, comparing the same metrics side by side and to industry standards. Here is an example:

For example: a healthy population growth metric is typically +2%

Step 4: Evaluate the Subject Market Under Stress

Identify which years brought economic uncertainty. How does the subject market fair in comparison to the national market or others in consideration through ALL economic cycles, including down or flattened growth?

Step 5: The Future of the Subject Market and Other Items to Consider

Think about how you would find out about what is coming to the area: Have there been press releases? Articles in local newspapers related to the economy, business, or real estate action? What information could you dig up at municipalities in the area – look up permits pulled and what is in development? Has the area won any awards, such as “top state for xyz…” How do government regulations either incentives or disincentive the subject area and population? How many permits were pulled in the past 6 months and what is being built? 

Decide and Move Forward

Avoid sitting in a state of analysis paralysis. If numerical data and growing familiarity with the location trend upwards, move forward by identifying local resources needed to help you achieve your investing goals. Confidence in a new market, and investing in general, does not happen overnight. It is an iterative process that develops over time, but as with many things in life: action breeds confidence.

Considering the Triangle of North Carolina in your Market Research?

We are here to help and looking to connect with fellow investors just like you! If you are looking to the Triangle of NC as your “subject market” and interested in easy, but exciting investment channels, allow us to invite you to book some time on our calendar so we can get to know each other. Click the button below, fill out our form and we’ll be in touch.

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