There are many people that come to me asking me what markets around the nation bring back the best REI. Of course, the answer can vary depending on many factors. For example, let’s say word gets out that the market in Dallas, Texas is having great cash flow. This can be true, but before you go buying up property in Dallas, you must do some further research into the submarkets.
See, Dallas could be an emerging market, but knowing what sub market, such as what suburbs or neighborhoods, is what you’re after. If you simple purchase property in Dallas anywhere, you could end up with a poor REI.
How to identify emerging markets
As you continue your real estate investment journey, here are some valuable tips on how you can learn to identify emerging markets. Keep in mind that various factors come into play, and there’s no guarantee that the market will do as you expect, but there are common characteristics to look for.
- Creation of new jobs
Your first bit of research will be job growth. If there is little to no job growth in the area, do not waste your money or time in that area. To find out what the job growth rate is, do some internet research on employment data or proposed growth for the future for that area. Talk to local brokers or check out the Bureau of Labor Statistic to see if there are any comprehensive reports.
- Population growth
The next factor to check is population growth. Now, keep in mind that even though numbers may be growing in a city doesn’t mean that every area of that city will be a good investment. There may be growth in the Art’s district, but other areas may be declining. You don’t want to buy a home in a district where no one will pay the rent you’re needing to make good cash flow. Again, talk to brokers and do your homework. The Census Bureau will have some statistics, as well as the local government.
- Pay attention to trends
Currently, it’s a renter nation. More and more people are opting to rent homes or units, but that could change and become a home-buyer nation before you know it. Pay attention to trends, and check with the city to see how many building permits are being requested. Compare the number with previous years to gauge where the market is cycle wise.
- Economic development
Is the city spending effort on economic development? Is it looking to bring in new business? Do some digging when it comes to the city’s economy and whether the government is working on attracting new jobs.
- Vacancy rate
What’s the local vacancy rate? How fast are current units being rented? If you find that a good proportion of homes or units are empty, you may want to stay away from that city. You can usually get this information from a good property manager or real estate broker.
Usually, property investors learn over time what to look for when it comes to an emerging market. Keep up to date on real estate news, talk with other investors or brokers, and be observant as you continue your investment business. You may not be successful 100 percent of the time, but you can become pretty good at seeing what areas are hot (or about to be hot) and what areas to avoid.