Guides & Processes

Markets

🌴 Florida
🍑 Georgia
🤠 Texas
⭐ California
⭐ Illinois
⭐ Arizona

<aside> 💡 When buying your property, it is best to look for markets with favorable buying conditions but generally within favorable markets tend to be seller’s markets. Real estate is local and location is the principal determinant of value. We can group them into two categories, the overall real estate market analysis and the neighborhood where you are buying or investing.

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Real Estate Market Analysis

Which Metro do I pick?

<aside> 💡 When starting out, it is recommended not to pick more than 2 markets to really focus on. Spreading your focus dilutes your ability to find deals.

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In order of easiness and operations:

A city within a 1.5 hour drive
A city where you know someone local that can check in on a property for you
1. usually the Subtle Asian Real Estate community can help you here
Everywhere else in the country

Important Metrics for MSA

Demographics

What is the Population?

You’re going to want a city with more than 100k people. It will make it easier for you to get loans and have a strong economy + tenant base.
Is it a primary, secondary, or tertiary market?

NY/SF/LA have been underperforming smaller metros like Phoenix and Austin for a while. There are bigger returns to be had by leaving the coasts, the South & South East sunbelt is currently dominating returns as of the last few years
Is the Population Growing?

This tells you if people want to move to your city, ideally positive
What is the racial distribution?

The more diverse, the more tenants you can market to and the more “hip” a metro tends to be.

Income

Is the Income or number of jobs growing?
- This indicates your ability to increase rent
- More jobs = higher income = higher rent
- You’ll want it to be either equal or higher than the national growth
What percentage of the population is below the poverty line?
- You’ll want something below the national average. Ties in to crime and the question above
Who are the main employers? Is the job market diverse?

EG: in 1950s, Detroit was the fourth-largest city in the United States due to one industry (Automotive). However, the city suffered urban decay due to the deindustrialization, globalization, and discrimination which lead to its decline.

Not all tech jobs are made equal. Just because FAANG brought in a data center, distribution warehouse, or sales team doesn’t mean that it will actually do much to improve the economy of a city.

Preferably, you don’t want 25% of the jobs to be in a single industry

Un-controllables

Do laws and ordinances favor tenants or landlords?
- Google recent news. If there’s a bill with rent control, don’t go there.
How long does it take to evict a tenant?

< 1 month is preferred and goes all the way up to 6 months on average such as in California
Is it in a flood zone or in an area where natural disasters tend to occur?

Tornado belt, Flood rating on Redfin and Zillow

Return metrics for comparing between cities

Residential - Average rental income, CoC return
Commercial and Multifamily - Cap Rate
Short Term Rentals - Average Daily rate

Important Metrics for Analyzing Properties and their Neighborhoods

<aside> 💡 Google maps is an easy way to pick out Points of Interest

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What class neighborhood is the property in? If you’re not sure there’s a rule of thumb based on coffee

A: Craft coffee houses with unique names

B: Starbucks

C: McDonald’s & Dunkin & Krispy Kreme

D: No coffee. There aren’t many jobs in the area so they don’t drink coffee. (Sometimes this might just be a very residential neighborhood if you’re in a small town, which means there’s a lot of homeowners in the area/possibly very few renters)

Class A properties are the riskiest. Often times, those tenants will downgrade in an economic downturn from class A→B, class B→C, and so on. Fun fact, in the 08’ recession, certain neighborhoods had the rent go up since all the people who were evicted still needed a place to live

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Other important metrics

Is it suburban or urban?

Since the great recession, suburbs have outperformed and it’s currently projected that suburban real estate will still continue to beat out urban property returns.
Proximity to good schools + average school rating

The better the school, the better the neighborhood
Proximity to companies with good jobs
Median Home Value
Median Income
Occupancy / Vacancy Rates
Percent Employed
Which percentage of population are renters? How old are they?
Crime Rate
Is it in a flood zone or in an area where natural disasters tend to occur?

Learnings from Papa Nelson's Data Analysis

Metrics that don't affect valuations/rent growth in SFH according to the census

@Nelson Lin, I can't seem to get rid of the no access below.