Lots of investors are strong believers in doing things themselves. If that is you, we can help.
Finding quality long term investments is not as easy as we thought it would be when we began.
There are lots of different parts of the U.S. (50 states), and they are not alike. Fully expecting there to be some core factors that define good markets to invest. We began looking, and… not so much. U.S. metros are different and resist categorizing.
Our own experience investing and working with lots of investors has given us some personal preferences. Generally we like newer homes (less to go wrong), in economically stable markets, with long term neighborhoods, and less crime.
When we broke it down we came up with 5 steps that helped guide our choices.
- Identify the market cycle and invest with the cycle.
- ID your criteria for what makes a good market for you.
- Find investor agent and good property manager.
- Find the right neighborhood and location.
- ID a property with right characteristics and condition.
What do you like? These are the way we attached the markets and data, and you can use this framework
#1 – Identify the market cycle and invest with it.
Market cycle can make or break you as an investor. Over time the amount of appreciation within a market is one of the greatest contributors to wealth for the long term investor. To say it is huge is an understatement!
But catching it at the right time is super important. If you bought a home in Sacramento at the August 2005 peak, you did not see the median price go higher than that peak for 14 1/2 years, February 2020. Almost 15 years with no positive equity.
Now if you bought at the bottom in January 2012 then you have seen about a 200% increase in less than 10 years. Some of those were the same years.
If you are at the bottom of the cycle – it will go up. If you are at the top of the market cycle, then invest in a market that is not cyclical like Sacramento if you want continue appreciation.
I like to use graphs to see where a market is historically, and we like to see multiple market cycles. The closest thing I have found online is zillow’s home value tool at: https://www.zillow.com/sacramento-ca/home-values/
#2 – ID the criteria for what makes a good market.
A great thing we have going for us is the amount of information available to the public. Some major sources are the following:
Population – Unemployment – Employment – Owner Occupancy – Crime – Rents – Income – Poverty – Median Family Income
We track 20+ indicators we have found to be useful for about 800 cities.
Here is a useful report with a little explanation and most common links. RESEARCH LINKS Download it here.
#3 – Identify an Investor agent and good property manager.
Getting someone who has experience and knows the market is absolutely crucial in a market you are not very familiar with. They will keep you away from flood zones and distressed areas, and near the right schools, shopping and employment areas.
They will help identify neighborhoods and properties that fit your investing criteria, in the right condition, where you will attract the right kind of tenants.
They will save you a host of troubles you did not know you could have, so look for full time professionals who know their business and work with investors regularly.
#4 – Find the right neighborhood and location.
Neighborhood quality and condition goes a long way to finding the tenant you want in your unit. If the neighborhood has garbage everywhere on the street it is probably going to attract a like-minded tenant. Same goes for a well groomed neighborhood.
Also a concern is what is next to the neighborhood. Be it an apartment building, low income property, luxury condos, train tracks, commercial retail center, airport, etc. These can be an advantage or detractor to getting and keeping tenants.
#5 – Identify property with right characteristics and condition.
What makes a good investment property? It is subjective to each investor.
What we have found works for many of our investors who do not live close to the property is the following.
3+ bed, 2 bath, 1,200+ square feet, Class B (or A) properties, Class B (or A) Condition. Generally newer than 2000, on decent sized lot.
You can look at this video if this does not make sense.