What Are the Most Important Statistics to Look at When Choosing a Multifamily Real Estate Investment Market?

People often ask me: What are the most important statistics to look at when choosing a market to invest in multifamily real estate properties?

I’m really not interested in doing the kind of investing that depends on short-term trends. I want to have a massive, slow, inexorable trend underlying my investments.

For that reason, I don’t care about “hot” markets – in fact, I run the other way if I hear a market is “hot.” It makes me cringe when I see people on Bigger Pockets and elsewhere trading tips on what market is “hot.”

The biggest trend I want to see is sustained population growth. All things being equal, population growth will drive demand for apartments. And, in average suburban markets, where there is little demand for sexy new luxury apartments, that means new supply is limited. You can have the holy grail of massive population growth combined with limited supply growth.

I look for population growth on the Metropolitan Statistical Area (MSA) level in the US Census data. I want to see it going back to 2000, so that I know it’s based on a factor that’s not temporary. (Look at some of the Texas and ND oil field markets to see how population can suddenly spike and then vanish.)

I also want to see the population data on the municipal, county and zip code level. The population should be rising at all levels. If it’s actually declining on any level, that is a big red flag for me that my property could be worth less than I paid for it when I move to sell.

(This is why there are attractive cap rates in many midwestern MSAs – the population is flat or shrinking, adding risk to your deal.)

In addition to the US Census Bureau, you can get very good data down to the zip code level on Hometownlocator.com. I also like to look at the data provided by the state and county.

Beware, especially in the South and West, if you see strong population growth on the municipal level. Cities in those regions often exhibit population growth because they are annexing neighboring areas. Make sure that this is not happening, and that there really is population growth on the MSA and zip code level. If there is population growth on both those levels, I am not as concerned if there is flat growth on the city or county level.

The next stat I look for is jobs. I don’t care about the unemployment rate, because this depends on how many people are looking for work. Instead, I look at the absolute number of jobs and where it is trending. I like to look at 3-6 months of data and look at the month on month and year on year growth and make sure that the number of jobs is increasing. (This will tell you, for example, if you have an oil-field problem, because the population decline may be hinted at by the job stats, which are compiled every month, and take a long time to be reflected in population growth stats, which are compiled annually or less frequently.)

Job stats are available on the MSA level in the Bureau of Labor Statistics’ monthly Metropolitan Area Employment and Unemployment Report

You should also look for data from the state and county as well. And, again, Hometownlocator.com has useful employment stats down to lower levels.

Finally, I want to make sure that the average renter can afford the apartments we are buying, with room to spare to raise rents.

Generally speaking, it’s said that a household should spend no more than 30% of its income on rent. So I like to find the local median income data and make sure that 30% of the median income is more than the rents at the property, with some room to move. That tells me that we can raise rents and half the population of the area or more can comfortably afford to live in our apartments. HometownLocator.com and the local state and county may have this information.

This is not the only way to do it, just the way I do it.

From your perspective, did I miss anything? What stats are important to you? Why? Where do you find them?  Please tell me in the comments.

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