November 1, 2018

JF1521: How To Select An Apartment Syndication Investment Market Part 2 of 2 | Syndication School with Theo Hicks

Time for part two of Selecting Target Markets for Apartment Syndication. This time, we’re teaching you how to narrow your target markets down to seven options. After you’ve done that, you need to know how they rank. Ideally, once you’re done, you’ll have two of the best markets for real estate investing. If you enjoyed today’s episode, please head over to iTunes, subscribe, and leave us a review.

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“Investing in your own market makes some of the later steps in the syndication process easier” 


 Free Documents for This Episode:

Check out these six commercial real estate reports for common trends you might want to consider when choosing your top real estate markets to invest in.

Additionally, download this detailed market evaluation sheet to help you take note of the employment rate, population, and other powerful metrics related to your potential target markets.

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Finding the Best Markets for Real Estate Investing

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process but how to actually do each of the things, and go into it in detail… And we thought, “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to, or to learn more about the apartment syndication school, go to, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners. Welcome to another episode of the Syndication School podcast series, a free resource focused on the how-tos of the apartment syndications. As always, I am the host, Theo Hicks.

Each week, we air a two-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document or a spreadsheet or some sort of accompanying resource for you to download for free. All of these documents and all previous and future Syndication School series can be found at

Right now, you’re listening to part two of a two-part podcast series entitled “How to select a target apartment syndication investment market”. If you listened to part one, which you should do, you learned what a target market is, you learned why the market comes before the deal, you learned how important the market actually is. Which, the answer is that the market itself is not as important as understanding the neighborhood and street-by-street level of the market… Because, within any market, you’ll be able to find a neighborhood that works with your investment strategy. Then lastly, we went over the process for selecting a target market, which I mentioned would be the focus of the next three syndication school podcasts.

In this part (part two) you’re going to learn how to narrow it down to seven markets to evaluate, to go from the 19k U.S. markets down to seven, and then, with those seven markets, we’re going to discuss the six market factors to analyze for those seven markets, as well as some additional factors that you’re going to want to consider for those markets. Then we’re going to rank your seven markets in order to select the top one or two markets for you to investigate even further.

Narrow It Down: Step One for Choosing the Best Markets for Real Estate Investing

Step one of the market selection process is to narrow down to the top seven markets, which would be MSA’s, or actual cities. How do you pick these seven markets? You wanna mix and match between these four different types of markets. First, you wanna select the market that you actually currently live in, so that’s probably going to be one market, so where you’re at right now – that will be one of your target cities or MAS’s.

Number two would be a market that’s within a one-three hour drive to where you currently live. This could be one market, or it could be two markets, depending on which state you live in and how close you live to other large MSA’s. The third category would be markets that you are already familiar with, and then the fourth category would be the markets that you really have no knowledge of whatsoever but are markets that you’re curious about.

Your Own Area is One of the Best Real Estate Markets to Invest in

For the first category, the market in which you currently live – you wanna pick this market because you will have the highest existing comprehension of this market, since you live there… Unless you just moved there a couple of days ago. And you’re likely going to have existing relationships in that market as well, whether that’s going to be actual team members that are real estate professionals, or passive investors. And also, investing in your own market makes some of the later steps in the syndication process a little simpler. It’ll make building your team easier because you can actually meet these people face-to-face in person. It’ll make the further investigations that we discuss in next week’s series, but also when you’re investigating actual deals, it’s much easier because you’re there in person, so you can visit the market; you can actually tour the deal in person without having to fly out or drive to the property.

Then, once you actually have a deal under contract, it will be easier for the due diligence process, so instead of living in a hotel for a couple of months in your target market, you can just live at home and then drive to the property in order to perform the due diligence. Then once you buy the property, it will be easier to visit them in person, rather than, again, having to book a flight out to the property. Because of that, you wanna pick your current location as one of your target markets.

Similarly, you wanna pick another market or another couple of markets that are within a one-three hour drive to where you live, because again, it will make those later steps easier… Not as easy as actually where you live – you’ll still have to drive a couple of hours, but it’s still better than having to hop on a plane, or have a 12-hour track to the property. At the same time, this also helps because what if the city you live in is not a market that aligns with your investment strategy? If you live in a very rural area, then you’re going to need to invest closer to a larger city, or if you live in a city that is not good for the apartment syndication strategy, whether it be because of some of the market factors we’re going to be discussing later on this episode, or for some other reason, you’ve got another option that is close by, without having to, again, drive or fly to another market.

The Pros and Cons of Sticking to Familiar Markets

The third category, which is the market you already are familiar with, is — the drawback, again, is that it might not be very close to where you currently live, but the benefit is, since you are familiar with it, you’ve got a higher comprehension of the market, and you might also have relationships in that market.

If this market happens to be further away from where you live and is not overlapping with category number two, then you’re gonna need to rely on your team a lot more because you’re not going to be able to just pick up and go to the property if something goes wrong, or once you actually have the deal under contract, or when you actually buy the property.

Now, you should be visiting the property on a frequent basis, but again, if there is an emergency, you’re not gonna be able to get there, so you’ll have to rely on your team to be able to resolve that emergency until you can get to the property.

Examples of markets that you are already familiar with would be where you grew up, so your hometown, but maybe you moved away. It could be the city where you went to college. It could be a city where you lived before but moved away, or it could be a city where you have family and friends, so you visited this area a lot. So a market that you have some level of familiarity with.

Some of the Best Markets for Real Estate Investing Are Ones You Have Yet to Discover

Then category four, which is the market that you have minimum knowledge about but are curious about – these would be just other miscellaneous real estate markets throughout the country that peaked your curiosity for one reason or another. If you don’t have any markets that have peaked your curiosity, then a good way to select markets in this category is to just Google “top real estate markets” or “top multifamily markets in the United States” and pick a handful off that list.

Another one which will give you added benefits is to read through the detailed commercial real estate reports and surveys that different real estate companies put together. The benefits of those reports, besides being able to find a top target market, is that you will also get a good education on the commercial real estate industry as a whole, and the variety of factors that are important and that investors look at when determining the state of the real estate market. This will be your first document, and it’s actually going to be multiple documents… But this is gonna be your first batch of documents that you will get for free for this episode, and those are my six go-to commercial real estate reports.

So if you go to, you’ll find a link to download these six reports. The first reports is Marcus & Millichap’s Annual U.S. Multifamily Investment Forecast Report. Annually, Marcus & Millichap puts together a report that gives you an analysis of the economic and political factors that have effects on the multifamily niche, in particular, the forecast for the coming year, and it also provides a ranking of all the major U.S. real estate markets using a variety of economic factors that they deem important. So that’s one document.

Another one is the CBRE Bi-annual Cap Rate Survey. As the title implies, this document will provide you with an analysis of the cap rate and return data for all of the major U.S. markets. It’ll have it for all of the different real estate niches and asset types, but multifamily is one of them. This is gonna help you figure out what markets have the highest returns or have the highest increase in returns.

The third report is IRR’s Annual Viewpoint Commercial Real Estate Trends Report. This is a detailed, data-driven report with lots and lots of graphs and data tables focused on the overall commercial real estate trends based on the current economic and political landscapes. Again, this is for each commercial niche, but it includes multifamily, and they’ll have especially reports for any niche that’s on the rise. At some point, multifamily might be one of those special reports, but for now, there are things like student housing or assisted living facilities, which could technically be deemed multifamily.

Another good report to read is the Zillow Annual Consumer Housing Trends Report. This is an overall analysis of the consumers in the real estate process, which includes the buyers and seller, the lenders, and – what’s important to you is the renters. It provides you with a snapshot of the renter today and what they’re looking for when selecting a place to rent. That can give you an idea of the different rents in certain markets, but also how renters are looking to find properties, and that could help you once you’ve actually purchased a property.

The fifth report is RCLCO’s Quarterly State of the Real Estate Market. This is dedicated to real estate developers and investors and other real estate professionals that are seeking strategic advice regarding property investing planning and development. This one here just kind of gives you an overall snapshot of the real estate market and advice on how to move forward.

Then lastly, we’ve got PwC’s Annual Emerging Trends in Real Estate. This is a compilation of more than 800 interviews and 1,600 survey responses regarding the emerging trends in the real estate industry. They ask a bunch of real estate professionals what they think the emerging trends are, and they compile all their responses into this report.

Based on those four different market categories explained, as well as after analyzing these six reports and doing a quick Google search, you should be able to come up with a list of seven markets to analyze.

Finding Data: Step Two to Finding the Best Markets for Real Estate Investing

Now that you’ve selected these markets, it’s time to actually analyze them. This is where you’ll get the other free document – there are actually two free documents. One will be a spreadsheet to log the demographic and economic data on, as well as a guide that will provide you with links on how to find the data. Again, to download those two free documents, visit, and it will be under the fifth series.

Once you have your seven markets selected, you want to get a high-level understanding of the demographic and economic trends for that market. And then, as I mentioned earlier, we’re going to rank those markets from top to bottom in order to pick the top one or two.

Determine the Unemployment Numbers for Various Real Estate Markets to Invest in

There are six different categories of data that you want to analyze. First is unemployment. You want to determine the five-year unemployment trend for the market. Now, the reason why is because people need to have a job and make money from their job in order to pay their rent. So if there is a high level of unemployment, there is less supply for you as an apartment investor because you’ve got less people that have the ability to afford rents.

In order to find this unemployment data, you wanna go to the census website, and you can find it under the Selected Economic Characteristics data table. For all of these different factors, you can download that free document at, and it will provide you with a link to find all this data, as well as a step-by-step guide of how to go from that link to the actual data table.

Then also, once I go over the six factors and why we are evaluating them and how to find them, I’m going to also go over how to actually analyze the results and interpret these results of the data.

Determine the Population Trends

Moving on, number two is the population. You want to determine the five-year trends for the population for both the city and the overall MSA. The reason why is because the population increase or decline will indicate an expanding or dying market. Because, at the end of the day, people are your customers, and if there is an increasing population, that means you’re having more customers, and if it’s a decreasing population, that means you’re gonna have less customers in the future.

In order to find the population trend data, you can go (again) to the website, and to find it for the city, you wanna locate the Annual Population Estimates data table, and for the MSA, you wanna locate the Annual Estimate of Resident Population data table.

Determine the Age Ranges 

Next, you want to determine the five-year trend for the different age ranges of the population. The reason is because different generations and different ages will demand a different type of apartment product. Recent college graduates wanna live in a different apartment than people who are just starting a family, than people who are going to retire from their jobs. So there are three different age ranges, and depending on which one is dominant and increasing, it will determine which type of apartment product is in the most demand currently, as well as in the future. To find the population age data, again, and locate the Demographics and Housing Estimates data table.

Determine the Job Diversity 

This fourth factor might be the most important factor, and that is job diversity. You wanna find the percentage of the overall employed population for each job industry for the current year. The reason is — let’s use Detroit as an example… Detroit was dominated by the auto industry in the ’70s and ’80s, and once Chrysler and GM (auto companies) went bankrupt, the city quickly followed suit and also filed for bankruptcy. The moral of the story is that you want to know what industry employs the most people in that market, and also think about what happens if that industry begins to struggle or even collapses. In order to find the job diversity data, you wanna go to and locate the selected economic characteristics data table.

Determine the Top Employers Within the Top Real Estate Markets to Invest in

Number five are the top employers. You want to compile a list of the top 10 employers in that market. The reason why is because, if you have one industry that employs a large percentage of the population, you wanna determine if there are one or two or only a handful of companies that employ that large percentage. It’s not gonna be a majority, it’s not gonna be more than 50%, but it could be 30%-35%, so you wanna see “Okay, so of that 35%, how many companies are employing those people?” Depending on how many companies are employing those people will determine whether or not this market is good in regards to the top employers.

To find this data — you’ll likely find it on Google, so just do a quick Google search for the top employers in the city, and you should be able to create a list from one source, or it might take a couple of sources, but you should be able to create a list of the top ten employers.

Determine the Supply and Demand 

Then lastly, number six is the supply and demand data. This is actually broken into three different factors – the vacancy rate, the median rent, and the supply trends. Why? Well, supply and demand are what impact the rental rates. You want to know this data so you can have an understanding of the rental trends and the demand trends of the apartments in your market. To find the vacancy data, you want to go to and locate the Selected Housing Characteristics data table.

For median rent — you can probably just Google it, but keeping with the theme of, you can go there and locate the Financial Characteristics data table. Then for the supply, you can find the number of new 5+ units constructed on the Annual Construction page on, or you could locate that data on the local auditor or appraisals website.

Analyzing the Data: Step Three for Choosing the Best Markets for Real Estate Investing

Favor Low Unemployment Rates

Those are the what and why’s and how to find. Now let’s go over how to actually interpret the data. For unemployment, you want to see a decreasing unemployment rate. A decreasing unemployment rate is a best-case scenario. If it’s low and not increasing or decreasing, so it’s stagnant, that’s also good. But if you see a high unemployment rate or an increasing unemployment rate, or even worse, a combination of both, that is unfavorable, because again, people need jobs in order to pay their rent.

Look for an Increase in Population

For the population, you wanna see an increase in population to the market. A stagnant population is kind of give or take, but a decreasing population is gonna be unfavorable, especially if you discover that the apartment supply is also on the rise… Because you have a larger supply in a decreasing demand.

Your Apartment Product and the Population Age Range

For the population age data – as I’ve already mentioned, there’s no idea results. This is more of you want to look at which age ranges are increasing and which ones are decreasing in order to have an idea of the type of apartment product that is going to be in the most demand, and that might help you make some tweaks to your business plan. For example, if you live in a market or you’re targeting a market where the age range of 25 to 34-year-olds is very high and increasing, then there’s likely going to be a demand for luxury apartments with nicer amenities, and maybe a market that’s very walkable.

If the same thing happens for the 35 to 40-year-old age range, so high or increasing, they’re gonna want good schools and a playground or maybe a day care center for their kids because they’re likely starting a family or already have a family. Or, if the largest and/or increasing age range is 55 to 64, you’ve got a lot of people approaching retirement, so maybe assisted living communities would be the most in demand.

Overall, for population age, you wanna just look at the data and see which age ranges make up the largest percentage of population and which ones are increasing to give yourself an idea of the types of apartments that will be in demand.

The Ideal Job Diversity 

For the job diversity, ideally no single industry employees more than 25% of the working population, and 20% is even better. Now, if there is more than 25%, because most markets do have a dominant industry that employs more than 25% of the employed population, you wanna ask yourself “How much do I trust this job sector?” and then, once you ask yourself that question, you probably don’t know the answer, so you wanna do some more digging. You wanna look at your list of top employers, you wanna talk to the locals, you wanna read some local newspapers or watch the local TV station to get an understanding of the strength or weakness or vulnerability of that specific job sector.

The Top Employers Should Include More Than One Company

For the top employers – again, this is similar to the population age range, there is really no right or wrong answer; it’s just something you want to keep in mind… You wanna look at the top list of employers, and then see if one or two companies are employing the majority of that major industry determined in the job diversity section, or if it’s spread across multiple companies… With the former being unfavorable.

If you’ve got a specific job industry that employs 35% of the employed population, and then you’ve got two companies that employ half of those people – again, if those companies are strong and don’t show any signs of going away, then it’s fine… But if they do happen to go away, the employment and the economy in that market is going to take a hit. So that’s something you wanna keep in mind, and then once you know those top employers, you’re gonna want to make sure you’re tracking those for any developments. Are they creating a new facility? Are they cutting jobs? Are they moving? Are they hiring more people? Keep all those things in mind, because that will help you determine if it maybe makes sense to get out of the market, and it’ll also give you some positive information to share with your investors about the market.

The Three Factors of Supply and Demand

Then lastly for the supply and demand – supply and demand is pretty straightforward, and all those three factors I discussed are tied together. As vacancy increases, then the median rent will likely decrease as well, because apartment owners are dropping the rents to increase occupancy, and then at the same time supply will likely decrease, because they’re not going to want to be building more apartments.

When you’re looking at these three factors, you can’t just look at them individually. You have to look at them together. For vacancy rate, a low or decreasing vacancy rate is ideal. A high vacancy rate that is also decreasing is a positive sign, and it might be a market to get into that will blow up in the future… And a stagnant vacancy rate is also okay. What you don’t wanna see is an increasing vacancy rate.

For median rent, a decreasing median rent is obviously unfavorable, especially if there’s also an increase in vacancy. Then for supply – again, this is something you can’t take by itself; you have to look at it with the median rents and the vacancies… So if the supply is increasing, but you realize that the median rent is decreasing, and the vacancy is increasing, that’s a red flag… Because if they’re building a bunch of apartments in the area and the vacancy rates are increasing, that means that the new apartments are not gonna be able to support the decreasing number of renters in that area. Those are the six main factors to look at and how to interpret that data for some kind of insights into what it means.

Other Factors to Consider When Looking for the Best Markets for Real Estate Investing

A couple other things you want to look at, too – one, is the market landlord or tenant-friendly? You wanna figure out how quickly can a landlord evict a tenant, what’s the eviction process overall, what’s the grace period before rent is considered to be late, how much time in advance does the landlord need to give to the tenant before they can enter their unit? What’s the process for returning security deposits at the end of the lease? Which party is favored more in court proceedings? Things like that. Obviously, a landlord-friendly market is gonna be better for you than a tenant-friendly market.

Another one is property taxes. Property taxes is one of the highest – if not THE highest expense – for owning apartments, and generally speaking, the states in the North-Eastern sector of the U.S. will have the highest taxes, and the Southern states will have the lowest taxes, with the exception of Texas, actually.

When you are looking at your market, you wanna determine “Are the taxes gonna be abnormally high, or are they gonna be low (which is a benefit)?”

Something else you wanna look at too is any upcoming construction. Do a quick Google search of your market and see whether there are any new offices or retail centers or apartments that are slated for construction. If there’s new offices or new retail centers, that means there’s gonna be more jobs, which is gonna be good for the market.

Something else you wanna look at too is to see if the market is ranked in any of the top market lists. Do another Google search and see if the specific target market comes up on a top 10 list on Forbes, or some other publication… Or you can also see if it’s won any awards as well; that’s another good thing to search for.

And the two last things – you wanna take a look at crime rates, and you wanna take a look at the school district rankings. To find the crime rates, go to, and for school district ratings, you can go to

Again, these are all things that people are gonna consider when moving into an area, so you want to make sure that you know what the crime rates are, what the school districts are, is it a top market to live in, are there new offices that could be in construction right around the corner from your market, things like that.

Think About the Driving Forces Behind the Trends

For all the different factors that you analyzed and the insights that you got from them, you wanna figure out what’s actually driving these trends. You wanna figure out if unemployment is increasing – why is it increasing? Or if it’s decreasing – why is it decreasing? Because these are all questions that your passive investors are gonna ask you. So when they ask you “Hey, Theo, why did you pick this market?” and you explain to them why you picked it, and they say, “Well, I did some investigations and I realized the unemployment is actually going up… Do you know why that is?” and if your answer is “Um, I don’t know…”, it’s not gonna look very good. So you wanna make sure you are proactively addressing these things.

For all the different trends, especially if anything is concerning, you want to, number one, call or go to the website of the Economic Development Office and ask them about the specific factor in question. You can also reach out to brokers, property managers, lenders, and other real estate professionals in the area, because they’re likely tapped in, or have been tapped into the market for so long that they have an understanding of what’s driving certain economic trends…

And then, lastly, on your own, you can perform a Google search or look at stories in the local newspapers or TV stations, or if the market has a biz career website, you can go there and search for articles that might indicate what is driving a certain factor to go up or down.

Rank the Best Markets for Real Estate Investing: Step Four

Ranking Based on a Score

Now you have your seven markets, you’ve got the economic and demographic data for all seven markets… The next step is to rank them from top to bottom. One way is to simply assign a score to each market for each factor. Since you have seven markets, each factor is gonna have a score of one to seven, with one being the best for that specific factor, and seven being the worst. For example, the market that has the lowest unemployment that is also trending down would be mark number one for unemployment, and a market that has a very high unemployment rate that’s increasing would be number seven. That’s one way.

Ranking Based on Tiers

As I mentioned when I was going over those factors, some of them are more important than others, so a better way to rank them is to rank them in tiers. There’s actually three categories of the different factors, from the most important to the least important. Tier one are the two most important factors, which are the supply and demand factors – that was vacancy, median rent, and supply – and then also job diversity. Those right there hold the highest weight. So when you’re ranking supply and demand and job diversity from those seven markets, a first-place finish for tier one holds more weight than a first-place finish for tier two.

For tier number two, we’ve got three factors. That’s gonna be the top employers, the population, and the unemployment. If there’s anything fishy in the top employers, meaning that a handful of companies employ the majority of the top industry, and that’s the red flag, or if the population is decreasing or if the unemployment is increasing, those would all be ranked lower than a place where the top employers are diversified, the population is increasing, and the unemployment is decreasing. But those factors are not as important as supply and demand and job diversity.

And then tier number three is the population age because, again, that’s just more of an analysis tool to determine the demand for certain property types… And then all the other factors I discussed – landlord vs. tenant-friendly, property taxes, upcoming construction, crime rates, school district…

What you wanna do is, again, rank all the different markets one through seven for each factor, and then for each of the tiers, add up those numbers. For example, let’s say for one of the markets they were a five for supply and demand, and for job diversity they were a six. So, for tier one, they have a score of eleven. Let’s say another market was first in supply and demand and first in job diversity, so their score will be two. Do that for tiers one, two and three. That way, you’ll have a first through seventh ranking for each of the three tiers, and that will help you determine the top one or two markets that you analyzed.

Once you’ve ranked them using the three-tier system that I explained above, you wanna select the top one or two markets to investigate further. Because if you remember, in part one of this episode series, the city and MSA aren’t as important as understanding the neighborhoods and submarkets within that specific city or MSA… So that’s going to be what we talk about in the series next week.


In this episode, you learned the main market factors to consider, why they’re important, where to find them, and how to interpret the data for all seven of your markets. First, we selected our seven markets. You also learned a couple of other things and factors to analyze and research for your target markets before you rank them one through seven using the three-tiered system I explained. Then, based off of that ranking, you picked one or two target markets to investigate even further.

In next week’s series, we’re gonna talk about what this investigating even further means.


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