Updated: Mar 7
Many syndicators and investors tend to buy multifamily properties in areas that they’re familiar with, which is usually where they live. Unfortunately, by doing this they are limiting their opportunities to make money from both operating income and appreciation. Here’s why: some markets are either high-priced or they’re not “landlord friendly.” That simply means there are laws or regulations in place that favor tenants instead of landlords, which makes it hard to evict non-paying tenants, for example.
I happen to live in southern California, but I invest in out-of-state markets that include Texas, Georgia, and Florida. Those markets are high-growth markets that are landlord friendly and offer opportunities to implement value-add deals, which can result in additional income and appreciation. The other reason I prefer out-of-state markets is cost: the average cost in Southern California for each unit is $500K - $800K, while the average cost per unit in Florida, Texas, and Georgia is $100K-$150K per unit. That’s a significant difference, and is a key reason to look at markets out of where I live.
Finding Good Markets
As I mentioned, you want to invest in a market that is landlord friendly and has good growth potential. You also want a market that has positive rent growth, instead of declining rents. Because I like to pursue value add deals, negative rent growth would preclude improving properties and raising rents. Other things to look for when looking at out-of-state markets are positive job growth and positive population growth. These are key markers that the market is growing, with new people moving into the market. That’s key for multifamily property owners.
When looking at new markets, there are several ways you can learn whether they meet the criteria I’ve outlined. There are several key online resources you can use to research potential markets. For example, if you’re researching job growth in a market you can Google www.city-data.com. When researching population growth simply search the census website at www.census.gov.
You should also research property appreciation in the various markets you’re considering for investment. Online resources include YardiMatrix, CBRE, Milichap, VeroFORECAST and others. All of these tools let you run analytics on market-specific cities, and you’ll gain key information on job growth, vacancy rates, employment information and more.
Research your Market
Once you’ve found a market that meets your criteria in terms of employment growth, vacancy rates, etc., you’ll want to research that market in order to learn all you can before investing in a multifamily property. Start by finding out who the top brokers are, and arrange to talk with them. Discuss the type of properties they’ve represented and what current listings they may have. Your goal is to get to know more about several with the ultimate goal of meeting them in person and touring properties with them. Brokers are a vital part of doing business out-of-state, because they know the market far better than you do. That knowledge is valuable to you as you look to invest in properties in states where you haven’t done business.
Another key partner to know is a property manager or property management company. The last thing you want to do is try to manage a property in Florida from California, for example. I’ve learned that it’s best to let property management companies do the local managing of the property while you manage the asset.
That means the property management company will focus on leasing the property, handle tenant complaints or problems, take care of all maintenance issues, do comparativ