We were looking for investment opportunities.
We identified that Florida is a state we want to invest in. So we spent time in several different cities, but primarily focused in the Tampa and Jacksonville markets.
We also dove into some of the secondary and tertiary markets around those two cities, from Saint Petersburg to Ocala to Palm Coast.
We certainly liked what we saw and plan on getting into some of those markets.
Many investors think that choosing a property is the most important factor when making an investment decision.
We would argue that a market is much more important than a property.
The team that supports your investment after you’ve identified a market is the second most important factor.
The property itself is often the last piece of the puzzle when looking for an investment.
So we put together some of the top items we look for and need to know before investing in a marking.
The first thing we look for in a market is how the population is trending. Is the population increasing or decreasing? Are people moving in, or are people moving out?
This comes down to a very basic economic discussion of supply and demand.
If people are moving into an area, there is most likely going to be an imbalance of housing supply and people demanding housing.
Naturally, a supply shortage and increased demand will lead to an increase in prices— as I am sure you have noticed this phenomenon over the last two years.
Price increases for both purchase prices and renting, both of which are positive to real estate investors. The opposite can also be true.
If people are leaving an area, there is less demand and therefore prices should decline. The price decline to the downside can be even more dramatic than the price increases.
Home builders and apartment investors can usually build more homes, but rarely do you see a destruction of existing homes in areas of net outward migration.
So we try to position ourselves in markets where people are moving to. Check out the chart below of the fastest growing states.
Knowing the tenant base, whether residential housing or commercial, is a major consideration when identifying a market.
The average household income is a major consideration. You need to know how much your tenants can afford in rent.
Typically, you want rent to be no more than 1/3 of the household income.
If the rent is $1,500 per month, you want the tenants to have an income of at least $4,500 per month.
Check out this graphic in this article by the Visual Capitalist showing the average salary needed to buy a home in 50 US metros.
If you can pair affordability of home ownership in a market with high in migration patterns, your chances of a successful investment are significantly greater.
One often overlooked aspect of identifying the market is the regulatory environment in that market. You need to know what taxes individuals pay.
Are property taxes high? Is there an income tax?
Taxes aren’t the only consideration on the regulatory front.
How favorable is the business environment in that state? Knowing if companies are moving to or out of a state is very crucial.
Job opportunities increase population trends and increase the income of the residents in that area, both of which benefit real estate investors.
Those focusing on residential housing, both in houses or multifamily, need to be very familiar with the tenant/landlord laws in that state.
What does the eviction process look like? If you have a bad actor in your apartment, how long will you have to wait to get them out?
You want to invest in an area where the law has a track record of being favorable towards landlords.
Below is an image of which states or more renter-friendly or landlord friendly.
One last item to consider on the regulation standpoint is private property rights.
Is there talk of rent control in your area? I recently learned that in California, you are not allowed to increase rent more than 10% in a 12 month period, even if the tenant moves out on their own free will.
You need to know if you have full control over your investment, or if the government is going to be controlling how you run your business…
And I won’t even begin to mention how governments respond to lockdowns.
A mentor of mine, Robert Helms, defines a cone of attraction as an industry or company that brings business, jobs, and money from outside a market to inside a market.
This could be primary jobs, like Amazon and Oracle moving to Nashville, TN.
It could also be a specialty hospital. It could be a professional sports team, or the World Equestrian Center seen below in Ocala, Florida (which is quite impressive by the way).
Climate and weather can also be a cone of attraction.
The last item that is critical to any market is being able to find a team who can support you and take care of your investment.
You are going to need boots on the ground that know the market, people who can find you real deals, and advise you on what side of town you need to be in.
You need to be able to find a market where you can find a good agent, broker, lender, property manager, etc. These are the people who can make or break any investment opportunity.
The items I discussed above are just the starting point when looking for a new market to invest in. The items above are Step 1.
Step 2 is physically laying eyes on the market.
You need to see where the progress is going in a market.
You need to see where the new construction is, and where the cranes are crowding the skyline.
Most investors don’t have the time capacity to travel to a market and do this due diligence. Ambition Capital Group would like to help you with that. If you are interested in talking more about opportunities in Florida or Tennessee, I would love to help any way that I can. Book a call here.
Until next time, go out there and make it happen!
