We often do things in this business backwards.
We jump right in and start looking for deals and we haven’t been thorough enough with researching the market first and we treat market research as an afterthought.
There are various websites that make this process much easier in recent years.
Previously, people would use the term “Emerging Market” and try to get really statistical with the different phases (Buyer I & II, Seller I & II), etc.
I don’t subscribe to this concept too much, as it is very difficult to predict with accuracy a market that is truly considered to be emerging because there are so many variables.
Plus, “Emerging Markets” sounds cliché.
I prefer the term “Growth Markets”.
Basically, you just need good fundamentals and what is called a “Path of Progress.”
If you have greater than a 2% growth year over year in a market that works.
Look up the unemployment statistics and demographics.
Your typical renting age is around 28-35 depending on the market.
Beyond this range, most people have gone on to purchase a home or they have moved elsewhere.
If the median age of the market you are exploring is 45 for example, be careful… that area could be dying.
Check out Marcus & Millichap for the reports they do about apartments and NREIonline has good info as well.
- You can get that at http://www.marcusmillichap.com/research/researchreports/reports/2017/01/17/multifamily-investment-forecast and at http://nreionline.com/multifamily
- Propert management companies (PMs) will give you a lot of helpful unbiased information about an area. Some people will be skittish about discussing areas, as they are afraid of Fair Housing Laws, but that’s OK, you can still learn a lot from PMs, as well as networking with them as a potential deal source! (one of my favorite and underrated deal sources)
- Call the Economic Development Committee and The Chamber of Commerce of a market you are interested in. A simple Google search can get you the contact information.
- What companies are projected to come into the area?
- How many jobs will this create?
- What development is going on in the area?
Be careful with markets that are “a one horse town” that have only one major employer. If that company goes elsewhere, you’re in trouble.
When you are speaking with brokers, ask them about the area.
Keep in mind that brokers are trying to sell you on buying anything and everything, as that is their job… but they still have intimate knowledge of the market they work (or they should if they’re worth their salt).
- Where are the investors buying apartments?
- Where are the B and C areas?
- Where are the D areas (that you should avoid)?
A-D are the asset classes of the property and the neighborhood.
For example- We would love to find a “C” property in an “A” area.
Here’s the asset classes explained:
Class A Multifamily
- Generally, product built within the last 10 years
- Properties with a physical age greater than 10 years but have been substantially renovated
- High-rise product in a central business district
- Commands higher rents
- Well merchandised with landscaping, attractive rental office and/or club building, have swimming pools, and have high-end exterior and interior amenities
- High quality construction with highest quality materials
- Highly paid white collar professionals for tenants.
THIS CLASSIFICATION OF PROPERTY (“A”) DOESN’T WORK FOR US BECAUSE THERE IS NO SIGNIFICANT VALUE ADD OPPORTUNITY
Class B Multifamily
- Generally, product built within the last 20 years
- Exterior and interior amenity package is dated and less than what is offered by properties in the high end of the market (Class A)
- Good quality construction with little deferred maintenance
- Commands rents lower than Class A
- White collar professional clientele
Class C Multifamily
- Generally, product built within the last 30 years
- Limited, dated exterior and interior amenity package
- Improvements show some age and deferred maintenance
- Commands rents below Class “B” rents
- Majority of appliances are original
- Working class, blue collar clientele
Class D Multifamily
- Generally, product over 30 years old, worn properties, operationally more transient, situated in mediocre locations
- No amenity package offered
- Marginal construction quality and condition
- Lower side of the market unit rent range
- Usually an area of high crime, drugs and other illegal activities
Take note of this information you get from these sources and if you had your own map, it would be a good idea to keep track of what you learn.
Use colored pencils or markers, identify the good and bad areas on the map and make it fun!
- What is the population of the area?
- Are there enough potential tenants for you? (For example- in some areas, the population is only 16,000- that’s a small amount for us)
- How long does it take for you to travel to the property?
You will most likely be traveling to the property for due diligence and probably quarterly to check up on your property to make sure everything’s running smoothly.
- How convenient is it for you? Do you have to switch flights and then drive an hour to get to the property?
- How convenient is the property for the tenants? Meaning, how far is the property away from the city and places that tenants would need to go to such as their job, etc.
Markets should be at least 100,000 population or 45 min drive of a major population 100k+.
Check out the area on Google maps.
Typically, you won’t see major grocery stores, banks in a bad area.
Unfortunately, liquor stores, pawn shops and smaller mini-marts are more prevalent, as well as check cashing places, tattoo parlors, pawn shops, adult bookstores, bail bonds services, etc.
Every picture tells a story.
- Are the yards trashed or kept up?
- Is the parking lot full of cars during the day? (perhaps because the tenants aren’t working)
- Are there cars on blocks, bars on windows, etc.?
Also, you don’t want rows and rows of apartment complexes next to each other.
If there is one other building next to the subject property that you are checking out that’s fine, but the less competition you have, the better.
Now we want to do a decent level of research when we’re looking for a market to buy apartments in… but at the same time, don’t think too hard.
Pick 3 markets that you like and take it from there.
Here are some good suggestions regarding the top places to invest in the United States (generally speaking) with respect to buying large apartment complexes and why.
The following is not based on statistics, but a collection of feedback from the investors I work with, who own large apartments throughout the country.
I am not going to discuss every single state in America… Just global regions for you to focus on, so you can get dialed-in and find deals!
Let’s dive in!
Look at an area in which you can purchase and operate an apartment complex for a good price (relative to other more expensive markets) that will make sense.
- Where are businesses & people moving to?
- What areas do we think will appreciate?
- How easy is it for you to go there?
- The Southeast & Midwest regions of the U.S.
- South of Virginia down to Florida
- Extend over to Texas & Oklahoma
For the most part, other markets have just smaller properties or they are too expensive and don’t cash flow.
You can get a more in-depth idea of some markets to explore here:
Download this list of markets and start calling brokers, property management companies, attorneys, private sellers, asset managers, etc and get your lead generation up and running!
This list is not absolute and you may know of a great market that is not listed here and obviously, markets change over time, but the previously mentioned markets will be a great general starting point for you.
Many states have “good” & “not-so-good” areas, so you must get intimate with the market.
Here’s some great resources to help you with that:
Lots of stats about a specific location and population
Other Crime Report sites that may be helpful:
- Spotcrime gathers information about crime incidents from law enforcement agencies, news reports, and user tips. Then, it plots those crimes on Google Maps so you can see exactly where they happened. Icons like “assault” or “DUI” are assigned to every crime, so with a quick glance you can get a clear picture of what’s happening in your community.
Spotcrime is free and anyone can go online to access crime maps. Users may sign up for crime alerts via text message, email, Facebook, or Twitter to stay up-to-the-minute with dangerous happenings near you. You can set crime watches for neighborhoods all over the United States too, so if you have a kid away at school or family in another area, you can keep tabs on their safety.
Over the years, Spotcrime has developed a number of helpful resources to enhance the safety of towns across America. A user-based reporting system has been put in place to allow community members to report suspicious activity and crimes they’ve witnessed. You can do so anonymously or by giving your name.
Another great safety resource is Spotcrime’s blog. It offers a wealth of information about how to get the most value out of the site and tips on safety. Plus, it will keep you updated about when new cities are added to the Spotcrime map.
As the name implies, Neighborhoodscout helps you find the neighborhood that’s best suited to your family’s needs. The web-based search engine uses local crime stats to build neighborhood profiles that allow you as the user to compare neighborhood crimes and trends.
The website also gives parents the chance to find just what they want in a neighborhood by selecting lifestyle keywords such as “first-time homebuyer” and “young professional.” So if you’re just starting out or are looking for luxury living, you can find areas of interest more easily.
No matter what you search, the website can retrieve detailed information about neighborhoods, crime data, school ratings, and even appreciation rates. All of this information is calculated by applying algorithms to municipal crime statistics from the FBI, so it’s up-to-date and accurate.
The best part about Neighborhoodscout hands down is not only that it offers a plethora of neighborhood crime information, but details about schools and homes. A really cool thing about Neighborhoodscout is that it also lets you specify a neighborhood that you like and is able to find similar neighborhoods in any state you choose. This could come in handy if you love where you live, but have plans to move somewhere new.
Whether you’re moving to a new neighborhood or plan on staying in your home for years, you’ll want to get familiar with this site. The National Sex Offender Public Website (NSOPW) is the only U.S. government site that identifies sex offender from state, territorial, and tribal registries together. You’ll only need to do one search to have all the information you need about sex offenders.
This is a free service and you can search the database by name, address, zip code, county or city to discover data about convicted sex offenders living, working and attending school near you. The site also offers valuable information about sexual abuse. Since The National Center for Victims of Crime stated that “1 in 5 girls and 1 in 20 boys is a victim of child sexual abuse,” this is an important tool to use to keep your kids out of harm’s way.
Crimereports believes that education is the best defense against crime. It connects law enforcement agencies and the public by publishing crime data for everyone to see.
Search for crime reports in your area by entering your address. Advanced search options allow you to discover crime statistics from the past 3, 7, 14 or 30 days or by searching for exact dates. Users have the option of searching by a specific crime type too.
What’s truly great about Crimereports is that you can sign up for crime alerts (daily, weekly or monthly) and use the Crimereports app (iPhone and iPad) whenever you want to check in on what’s going on in your community. If you know about a crime, you can use this tool to submit a crime tip to alert others as well.
PublicEngines, the company behind Crimereports, was named one of the fastest growing companies in the U.S. by “Inc. Magazine” in 2013. In fact, the booming crime site has enjoyed a 613 percent growth over three years and its products are used by more than 2,000 law enforcement agencies and other organizations around the world.
This is very similar to Spotcrime and allows users to input their addresses to find a chronology of recent crimes in their area. Theft, shooting, burglary, assault, robbery, arrest, and “other” are all categories the site uses to show what’s happening nerby. If you click on any incident, you’ll be able to get a quick description of the crime. For instance, an arrest might say “drunk driving” or “drug possession: heroin.” These details are important to know.
Unlike Spotcrime where users can report crimes, this data is all pulled from police reports and news sources. Consider it a crime ticker that you can check in on to make sure your neighborhood is safe.
Both the public and police contribute to this crime aggregator website. To see what’s going on nearby, you can select from a highly detailed list of crimes (like homicide, death investigation, vehicle theft, etc.). Users may view information on a computer or by downloading the app to your smart device. You can also sign up for crime alerts to your email so you’ll know right away of potential danger near you.
This crime map doesn’t have every city listed in its dropdown. For instance, if you’re looking for Salt Lake City, you can input the address, but you won’t be able to “jump to that city” in the dropdown or see events that are immediately close to you. It doesn’t seem to be as sensitive as other similar crime reporting websites, but it’s there for you to use nonetheless.
This is a really cool app.
It not only reports on crime, but has a number of other safety features as well. First, it allows users to report crimes through video, image, or audio clips. It lets you call the police and send automatic help messages if you’re in danger too.
If you have kids, you can have them download this CitizenCOP app and set up a “safe zone” perimeter so you’ll be alerted if they travel outside of bounds. That way, you’ll know where they are and can protect them better.
CitizenCOP even has additional consumer protection features like its cab fare estimator and vehicle background check to keep you from being overcharged for fare or from buying a stolen vehicle. It really is a modern and comprehensive safety app that goes above and beyond the typical crime mapping website.
If you’re contemplating a move, these tools can really help, but they’re only going to be able to give you the “on-paper” information. It’s important that you get out on location and personally scout out the area yourself if you’re planning on buying an apartment complex.
Check out the streets during the week, at night, early in the morning, and on weekends. See how you feel walking around.
Once you’ve done that as well as compared your experience to crime data online, you’ll be in a better position to make a decision.
Researching a market you want to buy an apartment complex in can be a lot of work and digging, but is the most vital and fundamental step you can take in your apartment buying business.
I hope this article helped you… Let me know what you would like to know more about with respect to markets!