I constantly hear of people that want to invest in an emerging market, the proverbial golden goose of the real estate industry. I believe much of this has been stoked by the somewhat resent opportunity zones that many are trying to invest in. To find the right area, there are many factors to take into consideration. Some of these are time-proven techniques that developers have used for decades to forecast rent growth and desirability to a neighborhood, others are more common sense, and straight economics.
1) Risk Appetite — Being part of the first wave into a new market can be daunting, you will need to be prepared for the long haul. Are you willing to be the first trailblazer into a sub-market, where you may get the lowest cost, but also potentially the longest time to see the change, if at all?
2) Look for City programs — Most cities are seeking ways to drive business to these communities, check with your city to see what programs are in place to drive business to this community, there are cities that have programs that incentivize non-profits to help turn an emerging community around.
3) Has there been a dramatic change in the demographics for the immediate neighborhood? Is there new residential construction that is driving higher prices, and denser neighborhoods? If so, it is likely that the commercial market will follow within a few short years.
4) Check the affordability — Can the community afford higher rents at this time, if not, you will want to consider the upgrades to your property and how much you spend on them.
5) How is the job market — If jobs are coming to the community you will then see growth and it will create need for more housing, retail and services to support the community.
6) Other buildings coming to the market — Are you seeing several other properties coming to the market or have there been more permits pulled to upgrade properties. You will want to check these by talking to the city and of course driving the area that you are looking to buy. Also, this may give you insight into what types of properties are in demand and where yours might fit into attracting the right tenants that may be willing to pay higher rents.
7) Vacancies and how fast they lease up — Look at the existing properties in the area, check their lease rates, condition of property and how long they stay on the market. If the vacancy rate is lower than the industry standard then it shows that there is room to raise rents, as the area is in high demand.
8) Infrastructure — You always want to check and see if there is enough infrastructure in place to handle the amount of people that you are expecting to move into this community, are there grocery stores, hospitals and schools.
9) Nightlife — Depending on your asset class, if you are looking at multifamily you may want to see if there is any sort of nightlife that your potential new residents may find appealing, after all, people generally like to eat, and go out in the neighborhoods in which they live.
I hope these tips help, please check out our blog https://www.joekillinger.co/joekillingerblog for more real estate investing tips