Invest in the Right Place
The Importance of Location
In real estate, the old adage holds true: location, location, location. Even the best-managed property in a declining market will struggle to deliver strong returns. When evaluating a real estate investment, understanding the local market is crucial.
Key market factors to research include:
- Job Growth: Are employers moving in or out of the area? What industries are present?
- Population Trends: Is the population growing, stable, or declining?
- Income Levels: Can residents afford the rents or home prices in the area?
- Development Pipeline: How much new construction is planned or underway?
- Rent Demand: What are vacancy rates and rent trends in the area?
Example: Market Comparison
| Metric | Strong Market | Weak Market |
|---|---|---|
| Population Growth | +2.5% annually | -0.5% annually |
| Job Growth | +3.2% annually | +0.8% annually |
| Median Income | $75,000 | $42,000 |
| Vacancy Rate | 3.5% | 8.2% |
| Rent Growth | +4.5% annually | +1.2% annually |
Tools for Market Research
Several free and paid resources can help you research local markets:
Free Resources
- U.S. Census Bureau: Population, income, and housing data
- Bureau of Labor Statistics: Employment and wage data
- Zillow Research: Home values, rent trends, and market forecasts
- Local Economic Development websites: Growth plans and major employers
- Google Maps: Nearby amenities, transportation, and neighborhood characteristics
Paid Resources
- CoStar: Commercial real estate data, comps, and market analytics
- REIS: Detailed market reports and forecasts
- Axiometrics: Apartment market data and analytics
- Yardi Matrix: Multifamily, office, and self-storage market intelligence
Market Research Walkthrough
Screenshot showing how to use Census data to evaluate population trends in a target market.
Analyzing Comps, Zoning, and Neighborhood Trends
Comparable Properties ("Comps")
Comps are similar properties in the same area that have recently sold or are currently for rent. They help you validate the sponsor's assumptions about purchase price, rental rates, and potential appreciation.
Look for properties with similar:
- Age and condition
- Size and number of units
- Amenities and features
- Location and neighborhood quality
Zoning and Development
Zoning regulations determine what can be built or modified on a property. Research the local zoning code and development plans to understand:
- Allowed uses for the property
- Height and density restrictions
- Parking requirements
- Future development that could impact the property (positively or negatively)
Neighborhood Trends
Beyond the raw data, understanding neighborhood dynamics can provide insight into future performance:
- Are new businesses opening or closing?
- Is the area gentrifying or declining?
- Are there infrastructure improvements planned?
- What's the crime rate and is it changing?
- How are the local schools performing?
Where to Find Reliable Local Data
- Census.gov - Population and demographic data
- BLS.gov - Employment statistics by metro area
- City-data.com - Comprehensive city profiles
- Local government websites - Zoning and development plans
- Zillow.com/research - Housing market trends
- Apartments.com - Rental comps and availability
- Neighborhoodscout.com - Crime data and school ratings
Key Takeaway
"A great property in a weak market can still underperform."