Less isn’t always more. And by less (in this case), I mean less expensive. Just because you find cheap properties in a given market doesn’t mean that should be your market of choice.
Hey Moguls, I’m Chris Clothier… this isn’t my first rodeo here at Mogul (and definitely not my last either). Because it’s been a minute since I’ve been around these parts, let me remind you fine folks who I am and my REI experience.
Chris in a nutshell…
I manage the development and implementation of sales and marketing processes for Memphis Invest. I truly enjoy serving as the voice for our family-owned company as we help potential investors define their purpose for investing in real estate and help educate peer companies on best practices in the industry.
As an experienced real estate speaker, I also address various audiences of real estate investors and business professionals nationwide several times each year.
Yep, I’m a busy man... I (only) occasionally come up for air. But I love what I do. Here’s hoping that the knowledge you’ll gain today about choosing a buy & hold market will help you love what you do even more as well.
So let’s get into it and circle back to my first comment about choosing a market NOT necessarily because the properties will cost you nothing but pennies.
How do you choose a great investment market?
I’ve said it twice already, but it’s worth saying again...
There are more important factors to consider when choosing your market than just finding cheap properties. Cheap houses don’t make the market.
I’m going to ask for a bit of insurance here, for your sake, of course. I challenge you to an exercise in restraint. Going forward – until you learn to NOT let cheap properties influence your market selections – I want you to forget the house. No, literally, forget about it. Don’t even look at it.
Dig into the details of the area…
Check out the condition of your market of interest first, and if the market is no good, then who cares if the property is inexpensive, right? Do your due diligence but don’t obsess over the research. Spend just a few hours, at most, doing your recon, determining if the market is solid, and then move on.
So, what determines a solid market and metropolitan statistical area (MSA is a geographical region with a relatively high population density)?
Factors like:
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Population – is it growing or decreasing? (You want a growing market.)
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Surrounding bedroom communities – are they flourishing?
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Community in general – is it an up-and-coming, affluent community of young professionals?
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Job market – is the number of available jobs increasing in the market?
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Industries – drive a market (more so than jobs).
These factors will help determine the long-term outlook for your market, which is key. Just remember to put the chicken before the egg - that would be the research before the house for those who aren’t following along. ;)
Related: "How to Purchase Out-of-State Rental Properties ... Without Even Seeing Them In Person!"
What’s the most important market factor?
I know it can be overwhelming to weed through the research in an effort to determine which factors matter most. So let me make it easier for you…
The #1 factor to consider when determining your market is growth.
It doesn’t matter if your market is big or small; what matters is whether you see growth happening now and in the foreseeable future. You want to own investment properties as a generational wealth-building tool.
In other words, think of your children and the generations to follow when you review your market’s growth… you want your kids and their kids to live in an area that will continue to grow.
Jobs vs. Industries
Look, jobs are important. There’s no doubt at it. That’s why I mentioned them above.
But what’s more important to the growth and development of your market are industries.
Look at the kind of industries (and whether there are any at all) in your market, because industries are what create jobs and will ultimately be a driving force behind your market’s growth.
Industries such as:
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Logistics
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Transportation
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Security
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Healthcare
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Manufacturing
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Construction
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Government
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Hospitality
Industry first, then jobs.
Consider how many jobs are being created in your market (not the unemployment rate). Every market is going to fluctuate. Companies downsize, businesses close. The key is understanding the potential for job demand.
Are companies in other markets showing interest in your market of choice? Are companies currently being built in your market?
It’s about long-term viability and stability. If you see job growth and development on the horizon, then chances are your market is a good one.
What’s up with housing?
This is a no-brainer, right?
You’ll want to dig here too for some details to determine not just investing prices but overall housing movement.
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Are homes moving like wildfire through the MLS?
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How long are houses sitting on the market?
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Are sellers being forced to take discounts from list prices on final contract prices?
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Are housing stats up or down?
Get a feel for what’s happening with the housing trends in your market...
Also consider researching the housing price histories. What are the now, and what were they at their highest? Compare the variances, and look for high peaks as opposed to current lows.
Check out the number of foreclosures, too. Generally speaking, a market with a high number of foreclosures will mean lower price points for you and solid long-term investing.
The final piece is the cost of living.
It’s always helpful to know what it costs (in general) to live in a select market. You want to look for markets with relatively low costs of living. Rule of thumb? Look for markets where the cost of living isn’t more than the average income of someone in that area. And that translates to affordable housing.
You can buy a house, rent it and make a return on it (even if you need to use a property management company).
Top research resources
Again, remember not to spend too much time researching but a little digging is key. Start with a basic Google search, check out your local online magazines, local blogs (that can give you a feel for what’s happening in the city – good and bad) and even visit your area’s Chamber of Commerce online for some insight.
USA.com (formerly Citydata.com) is another great resource for getting the 411 on your select markets.
As you can see, there are lots of factors and even more numbers that go into market selection. Nowhere in the lesson did you read about cheap houses.
Nowhere.
Cheap is a state of mind and can potentially harm your business, so get the concept of “less is more” out of your head when it comes to finding a great buy & hold market.
Remember, the house is the last thing to look at. Do your market research, but don’t obsess over it. Know what’s happening in your market before you invest significantly more time and money.
A little information goes a long way, and here’s hoping the information I shared here with you today will go a long way too.
Talk to Us!
Busting at the seams to share your thoughts and experiences about buy & hold markets? Share below.
Stop - like, right now - thinking about cheap houses!
Do your research BEFORE you consider investing in a given market.
Don’t spend umpteen hours digging, but find enough information to feel confident with your market selections.
Use local resources to your advantage. After all, nobody knows a market like those who live in it!