The specific real estate market in which one invests is an important determinant in one’s success as a multifamily real estate investor. The following five key metrics can inform the investment decision by providing important information about the health and status of such a market:
Population growth rate
Since more residents translates into a greater demand for housing, this is one of the most important metrics for predicting future market volatility. It’s not necessary to identify a market in the top 10 for population growth. As an investor, you’ll care more about steady, long-term growth. If growth in your prospective market is flat to negative, it may not be an ideal place to acquire multifamily assets.
Employment growth
As employment growth tends to drive population growth, you should develop an understanding of your market’s job creation trends. Check out whether the job market is steady, whether it fluctuates at a greater rate than that of the overall economy, for how long a period it has been stable, and what forces drive its ebbs and flows.
Components of employment growth
Merely looking at job numbers won’t give you the whole picture. You also need to understand from where those jobs are coming. Specifically, you want to research the stability of job sources (service and retail jobs can be very volatile), the types of job sources (and whether they are likely to attract white collar, blue collar, or minimum wage workers), and the age group from which the dominant job sources are drawing.
Unemployment
Understanding the components related to unemployment is different than for employment growth, so it’s important to look at this factor separately. In general, you want to look for a market with lower unemployment than the overall national market, which will make your market comparatively better for multifamily ownership.
Landlord/tenant law
A number of laws from different sources affect how you will operate your multifamily investment, so a thorough understanding of these is critical. It is particularly important to pay attention to how evictions are handled, as these can wind up being costly and damaging to landlords in some areas.
