Aside from rental prices, what’s the number one thing renters look for in a home?
Location.
The best rental property with the best amenities at the best price is still going to struggle to keep tenants if it’s not in the perfect location. Multifamily real estate investors need to factor in these location preferences when purchasing new properties.
Some locations are always going to be desirable to real estate investors – think North Hills in Raleigh or Brightleaf Square in Durham. While properties in these areas are generally considered safe investments – they’re likely to maintain their value – they almost always come with a hefty price tag, chipping away at the overall return on investment. Multifamily real estate investors looking to increase cash flow and boost ROI are often better off looking elsewhere – toward emerging markets.
The mark of a great investor is the ability to identify emerging markets early. But it’s not exactly easy. As with any lucrative investment opportunity, these markets come with a level of risk but provide significant rewards when executed well.
Key Indicators of Emerging Markets
First things first, what exactly is an emerging market? In real estate, this term typically refers to a location or region undergoing or in the early stages of economic development. When identified correctly, early entry into one of these markets equals a big payout for real estate investors. Identifying emerging markets is not an exact science, but there are common themes to look for. Let’s take a look at some of the key indicators of an emerging market.
Population Growth
One of the more obvious signs? Look for population growth. In terms of real estate, population growth can be a good indicator of two things: a strong job market – i.e. more workers/renters moving into the region with more cash to spend – and rising property values.
Rising Rents and Vacancies
Economics 101: Supply and demand. If an area has steadily rising rents, properties are renting quickly, and there is a low percentage of unrented properties, there is likely a high demand for housing. Investing in multifamily properties in this area could lead to consistent tenancies and steady cash flow.
Industrial Growth
Beyond the state of the rental market, it’s a good idea for multifamily real estate investors to look at the local area and the companies therein. What industries make up the local economy? Has there been growth in those industries? If a major company or tech giant moves into a new area, it typically comes with a surge of employees in tow. A good example of this is companies like Apple, Amazon, and Meta moving into The Triangle in Durham.
Investments in Infrastructure
Multifamily real estate investors should look out for areas with a strong and varied infrastructure, or better yet, areas that are investing in their infrastructure. Cities with ample shopping and entertainment, well-maintained roads, and airports nearby are highly sought after. If a city is investing a lot of money into these areas, it may be in anticipation of population growth.
Lifestyle and Demographic Changes
It’s also a good idea to factor in lifestyle changes and shifts in demographics when determining an emerging market. For example, many Millennial and Gen Z renters are opting for a stronger work-life balance and flocking to places that foster that lifestyle. This has caused population booms in outdoor recreation havens like Durham, Raleigh, and Charlotte since the start of the pandemic.
A+ School Districts
Pay attention to school districts – public school systems play a big role in families determining where they want to rent and live. An area well-regarded for its schools – schools with excellent test scores, student enrichment programs, grants, and other outside investments are good signs – it may be a sign of an emerging market.
Foreclosure Rates
Multifamily real estate investors may want to look into foreclosure and default rates before investing in a new property. An online search could offer a quick glance at the state of things in a potential emerging market: low foreclosure rates could indicate a stable economy and strong job market, whereas a high number of foreclosures indicates things aren’t going well in the region.
Network
Talk to the experts. Realtors in the local area are boots on the ground every day, selling and renting properties in the areas multifamily real estate investors may be considering. These experts can give a realistic perspective on the state of the local rental market. There are also multifamily real estate experts who can advise on investment opportunities and provide insight into potential emerging markets – book a call with us to learn more.
Summary
Consider these factors when determining if an area is an emerging market for multifamily property investment. Awareness of these indicators can help determine areas of potential growth and insight into areas investors may want to avoid. To learn more about emerging markets and get started on your multifamily investing journey, contact us today.
