Methodology for Picking the Best Areas for Multifamily Deals

Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Michael: Hey and welcome to the REI Classroom. My name is Michael Blank and I will be your instructor today. Today, we’re going to talk about the methodology for picking the best areas for multi-family deals.

Mike: This show was sponsored by PassiveRental.com.

Michael: It kind of all starts with the area you’re investing in. And there are so many different places you can look. So how do you narrow it down? A lot of people would like to invest in their backyard, but a lot of people can’t because everything is so overvalued and it forces us to look elsewhere. But maybe we don’t know that area as much and so that opens up the entire US. How do you narrow it down?

So here’s my three-step. I’m going to give you three steps to what I look for and I’m going to give you three reports that you might find helpful in helping you implement this. So criteria number one is to look for areas you like. And maybe you have an affinity to a certain place. Maybe you have a friend there or a family there, or maybe you like the sun, or maybe you like to ski. I don’t know. Just make a list of cities you like and start there. So that’s number one.

Number two, you’re looking really for . . . well, number two and three, you’re looking for a combination of high yield and high growth areas. So what I mean by high yield are areas that are maybe not as overvalued or pricey as some others. For example, if you’re in San Francisco or Manhattan, real estate is really pricey. People are willing to pay all kinds of money just to get real estate there, but the returns are really low. Versus more in the middle of the country, the yields are going to be higher.

So can you find an area that has high yields? But you want to couple that with number three, which is finding an area with high growth. What you’re looking for are economic indicators that have job growth coming in. You don’t want declining or stagnant. You want something that’s in the works that is creating job growth and that has a diversified employment base. So those are the three that I look for as well.

So how do you do this? So I have three reports that can help you with the stuff. The first one is the Marcus & Millichap National Apartment Report. And to find these things, I would just Google these things. So I just Google “Marcus & Millichap National Apartment Report.” You get it for free. You’ve just got to put in your email. And what it does is that it ranks different metropolitan areas by various factors. For example, vacancy and rental rates, sales trends, cap rate and yield, employment growth, that kind of stuff. They have different kinds of indicators for high growth et cetera. It’s a really useful tool, but it’s only available for some of the larger, maybe the top 20, 25 metropolitan areas in the United States.

The second one is called the IRR Viewpoint Report, and you get it at IRR.com. And what’s interesting about the IRR Viewpoint Report is that it looks at various different metro areas in their market cycle, i.e. for what they call a recovery or expansion all the way to hyper supply. It’s kind of this bell curve, where it’s a buyer’s market, a seller’s market, and the real estate market is all cyclical. We’ve seen this over the years and it maps different cities on this graph. So what we’re looking for, obviously, is we’re looking for markets that are in the recovery phase or in an expanding phase.

Now, believe it or not, there are actually markets in the US that qualify, and most of them are not, but there’s still a good number of them that are classified by the IRR Viewpoint as a growing market. And that’s what we want to focus on. We want to stay away from the ones that are in hyper supply or possibly are in a recession cycle.

The third report that if I found useful is the Milken Best-Performing Cities Report. Again, Milken Best-Performing Cities Report, and you just Google that. And you get the one from either 2015 or 2016 and it ranks the 200 largest cities, and the 200 small cities according to various different criteria: job growth, quality of living, and things of that nature.

So how do you put all the stuff together? So why not start with the IRR Viewpoint Report? Create a short list from the cities in the recovery or expansion market cycle. So these are cities that are expanding or growing, or rents are going up, the sales are going up. These are expanding, from a sales and rental perspective, are expanding. And then check out the Marcus & Millichap report and cross-reference that with their opportunity and high octane indices. These are some of the indices that they flag as rapidly expanding or markets with a lot of potential.

And then cross-reference that list with places that you wouldn’t mind spending time. For example, Cleveland and Cincinnati are great, high-octane cities with lots of growth, but so is Florida. Tampa, Jacksonville for example, Orlando. Maybe you have a preference for the beach. So maybe you classify the sunny cities a little higher than Cleveland and Cincinnati.

The other criteria I have is I need to be able to get there in a direct flight within two hours or less. And I’m on the East Coast. So these are some of the things you want to put together and you create a top five or top 10 list. And that is really how you evaluate and narrow down your list for multi-family apartment deals. Hope that was helpful. Catch you on next episode.

Mike: PassiveRental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting PassiveRental.com.

Please note, the views and the opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

Are you a member yet of FlipNerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds and get access to hundreds of off-market deals, vendors in your market to help you in your business, and you can start networking with thousands of other investors just like you. Get your free account now at FlipNerd.com.

Please check out the FlipNerd family of real estate investing shows, where you can access hundreds of expert interviews, quick tips and lessons from leaders across the real estate investing industry. They’re available at FlipNerd.com/shows or simple search for FlipNerd in the iTunes store.