One of the many benefits of investing in real estate syndications is that you don't have to live — or even travel to — where you invest. As a passive investor in a real estate syndication, you're leveraging the time, knowledge, and expertise of the general partners to successfully manage your investment.
Once you venture beyond your local vicinity in search of investment opportunities, the horizons expand infinitely. So, what makes up a great market? Should you invest in a large city? How do you know if a location has potential?
You can start by evaluating a few of the most important factors to consider when investing in a new location. Here are three things every passive investor can research to pick out a great market.
As steady job growth signals a robust local economy, it becomes a magnet for new businesses, developers, and residents. Hence, it stands as the pivotal metric to scrutinize in every market.
Job growth serves as a precursor to population expansion. With an increase in employment opportunities, more individuals flock to the area, reinforcing a solid tenant foundation. The influx of people stimulates housing demand, consequently elevating both rental rates and real estate values.
Among the 50 largest apartment markets in the United States, 26 markets are expected to see 2024 job growth above the U.S. average. Austin is expected to record the fastest job growth in the country at 1.8%. Next are Las Vegas, Orlando, and Houston, which have the fastest project job growth in 2024.
As job growth increases in a given market, so will the demand for housing in the area. With the cost of home ownership becoming increasingly more difficult for the average American, this could force more people to rent apartments.
When evaluating job growth in a city, look for a steady increase of companies moving into the area or existing companies continuing to add jobs. Are there recent articles of companies moving their headquarters out of the city? Did a company sign a new contract and will be adding 1,000 extra jobs? These are all important factors to look for.
Considering that the population of a specific region can be influenced by various factors such as natural disasters and migration patterns, it's prudent to prioritize researching it after examining job growth.
Identifying an area with sustained, long-term population growth trends — rather than temporary spikes — is crucial, with job growth playing a pivotal role in sustaining such trends. The average population growth of a city in the U.S. is around 1.1% annually, so be sure to look for markets that meet or exceed the U.S. average population growth.
Various markets in Florida gained the largest number of people from 2022 to 2023. The population of Wildwood-The Villages, known for its large retirement community, rose nearly 5% to 151,565, making it the nation’s fastest-growing metro area. Lakeland-Winter Haven, the second fastest-growing metro area, is up nearly 4% at 818,330. The populations of Ocala and Port St. Lucie — the fourth and fifth fastest-growing metro areas, respectively — increased by more than 3% each to 409,959 and 536,901.
To verify population growth in a given market, investors can use free resources online such as the U.S. Census Bureau and RealPage Analytics.
Beyond the top two factors, job growth and population growth, the next best factor to learn about is the laws governing rental properties. Some cities impose high property taxes and strict landlord-tenant laws, which can make it extremely difficult to be a successful real estate investor in some of these markets.
Rent control, for example, is great for tenants but makes it incredibly challenging for landlords to make a return on an investment in an area where costs for contractors, pest control, and property management are skyrocketing. States like New York, New Jersey, and California have markets that utilize rent control.
Portland, OR is another market known for having extremely tenant-friendly laws. Portland bans “no-cause evictions,” an intentional misnomer that refers to landlords opting not to renew a tenant’s lease agreement. That also applies to “substantial” changes in lease terms, and rent increases of 10% or more in 12 months. If the landlord does any of these, they must pay the tenant relocation assistance.
As an investor, this doesn’t mean you can’t invest in these markets. However, you need to be aware of the risks these markets present. To verify if the market you're planning to invest in is landlord-friendly (or not), you can search online for landlord-friendly markets, ask around in real estate Facebook groups, or even talk to somebody local in that market you may know.
When investing in commercial real estate, it’s important to put aside your political views. The locations where you choose to invest are critical. Depending on the city, there may be substantial differences with landlord/tenant laws. You will need to determine your risk appetite and pick a market you are comfortable with.
One of the many benefits of syndications is that passive investors never have to visit or travel to the properties they invest in. Passive investing can offer a streamlined approach to wealth accumulation, but a huge part of a successful syndication involves picking thriving, business-friendly markets to invest in.
About the Author:
Justin founded Next Level Equity, a company dedicated to helping busy professionals passively invest in real estate syndications so that they can live a life by design now, instead of waiting until they retire. Next Level Equity specializes in value-add multifamily real estate and exhibits expertise in maximizing value on every asset they acquire. Rather than attempting to predict the market cycles, they strive to acquire cash-flowing apartment communities within Indiana.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.