When investing in commercial real estate, you have the luxury of leveraging the experience of professional teams. These teams are often boots-on-the-ground in various markets, making the possibilities of where to invest your money virtually limitless. While this prospect is exhilarating, it can also be quite overwhelming.
Before you start diving down every possible rabbit hole, cross-referencing “best real estate market” lists, and trying to make sense of current population trends through online searches, we have a better way. Researching potential markets can quickly consume your time and energy while not helping you draw any firm conclusions unless you know what metrics matter.
Here’s what we recommend – start by assessing your personal investing goals. If you want to invest in a growing market that also provides decent cash flow, you can use this research checklist to help get started:
- Job Growth Trends
- Population Growth Trends
- Job Diversity
- Landlord/Tenant Laws
- Geographical Features
- Cost of Living
- Local News
- Local Government
- Your Competitive Advantage
Our evaluation process led us to focus on target markets in the Southeast region that share similar job and population growth qualities, important demographic metrics, and strong affordability characteristics. Some of the characteristics our target markets exhibit include:
- Economic growth over the past five years
- Population growth with net in-migration
- Healthy job markets versus the broader United states
- Business friendly governance with lower taxes and regulations
- Overbuilt power centers and strip centers that lead to traffic congestion
Investing with Premium Property Trust allows you to confidently invest with an experienced team that has done the legwork for you. If you choose to perform your own due diligence on any property or market, remember that deciding how and where to invest begins with your personal goals. Our markets, focused on mixed-use opportunities, could look very different from a company aiming to grow a self storage portfolio.
If you still want to familiarize yourself with the metrics in which we focus, start here:
Job Growth Trends
Steady job growth is indicative of a healthy local economy. As you know, a thriving economy will likely be attractive to new businesses, developers, and residents to the area.. This is one of the most important metrics to evaluate in each real estate market.
Unsurprisingly, job growth is a leading indicator of population growth. The more jobs, the more residents, the more likely the area will maintain a strong tenant base and low vacancy rates. Furthermore, when more people are attracted to an area, the demand for housing increases, which drives up rent and real estate prices.
Population Growth Trends
After checking out job growth trends, look closely at population growth trends. Since the population in a certain area could be affected by natural disasters, migration patterns, and more, you typically want to research it after job growth.
Be sure to find an area with long-term upward population growth trends and not just a temporary bump. Population growth is largely supported by job growth in the area.
These two metrics are powerful in providing a full picture of the health and future of a given market.
Look for an area with a variety of industries supporting the local economy. Strong job growth data could look great on the surface until you realize that most of the jobs in the area are tied to one industry.
Let’s take the tourism industry for instance, we know how a recession or a negative news story could largely impact the number of tourists, which could in turn negatively affect the job growth and the population trend.
A diversified job market is much more attractive and is more indicative of the true health of a local economy.
After evaluating Job Growth Trends, Population Growth Trends, and Job Diversity, one of the next best factors to explore are the laws governing rental properties. We focus on markets with business-friendly governance that also offer lower taxes and regulations.
For example, rent control seems great for tenants but makes increasing ROI incredibly challenging for landlords. This is especially true in an area where costs for contractors, soft costs, and property management are subject to rapid increases.
As an investor, it’s wise to gain some insight from local property managers. They’re intimately familiar with these laws and can best direct you to finding landlord-friendly areas.
While taxes may be an afterthought for many investors, they can make a huge difference on the bottom line.
State and local taxes can have an impact on both the landlord and the tenant. For tenants, taxes could impact how much rent they can afford. Each state has a different tax structure so it’s a smart move to understand what you’d potentially be getting into so you can be prepared later.
Visit in person, or use Google Maps to check out the actual, physical landscape of the area. Are there any physical barriers like a body of water, a mountain range, or any other geographical features that could inhibit the physical development of the area?
For example, in coastal cities development is limited by the ocean. Construction can only get so close to the water, which forces developers to build upward or expand into the suburbs. As a result, the value of centralized real estate increases, which is especially true in a time of job and population growth.
Cost of Living
In areas where the cost of living is low, especially in comparison to the median income in the area, you’re more likely to experience growth. Consider this, if people can easily afford to live in the area, there’s plenty of room for the cost of living, or rent, to increase as more jobs and people move into the area.
As you can assume, the previously listed factors are much more important than checking out local news. However, once you’re fairly sure about a certain area, it’s a good idea to track a few local news stories.
Exploring local news may give you a heads-up about new companies moving to, or away from the area, local announcements, community developments, and any other information that would give you a sense of understanding of the local economy and potential future of that market.
Similar to the local news, the local government is a good indicator of the area’s potential. It’s wise to invest in areas with strong local leaders who support new initiatives and an expanding local economy. Seek out local governments that make the market vibrant and welcoming for new businesses and residents.
Strong local leadership is attractive to corporations, which directly contributes to continued job growth.
Your Competitive Advantage
It doesn’t take much to give you a competitive advantage in a given area. It can be as little as having greater insight into a certain area, more so than other investors. Perhaps you have a close family member or friend who lives in the area, maybe you went to college there, or it’s where you grew up.
Any time you possess even a slight competitive advantage, more weight should be given to that market. Local connections or a little history with a particular area can put you far ahead of other investors.
Completing Your Due Diligence
The beauty of investing in a commercial real estate investment trust is that you’re not responsible for choosing or managing the individual investment properties. You get to leverage the knowledge of a professional team to make those decisions.
The other advantage is immediate diversification. When you invest in a fund of growth-oriented real estate assets, you’re spreading risk over all the properties currently and potentially included in that fund. This is almost always less risky than investing in a single rental property, syndication, startup, or stock.
As a passive investor, we still recommend you perform your own due diligence on the markets and familiarize yourself with our strategy before investing. By exploring the market metrics, evaluating their alignment with your personal goals, and exploring the transformation process of the properties already in the fund, you’ll become more confident about what you can expect from your investment with us.