After a roller coaster year and a half, which has changed what many people thought they knew about the economy, investing, real estate and life in America, many may be wondering where the best markets are to invest now.
When it comes to real estate, much less has changed than many onlookers expected. Though there have also been some significant shifts. Some of which may be temporary, and others which are here to stay.
Few expected the Manhattan market to crumble the way it did. Or for national home sales and prices to hit new record highs. Instead of relying on pure guesstimates of the future, it is times like these when investors need to re-familiarize themselves with the fundamentals. These are the barometers and pillars of choosing the right markets to invest in. Make sure you are using them to evaluate your options.=
Crime rates have a waterfall effect on all of the other fundamentals of a city and real estate market. High and rising crime (especially violent and property crime) turns residents and would-be residents off, and sends them packing, while impacting the local economy. Consider both crime rate comparisons to other markets, and the direction of the trends.
Is the local population growing or shrinking? This will impact all of the below fundamentals. It will dictate prices and values, and property performance. Being in a declining market, especially one which may have peaked on the larger timeline can prove challenging. You’ll have to work even harder to keep up performance.
They say if you can only choose one factor to evaluate a market by, it should be affordability. This will reveal any downside risks, as well as potential for growth, and sustainability of increasing performance. It is the number one predictor of growth potential for asset value and yields.
Individual properties can experience low vacancy rates during any one period for a wide variety of reasons. Though local, zip code, and city level vacancy rates will tell you a lot about the strength of the market. It is wise to check out these trend lines and see which direction they are headed in too.
Dollar prices themselves may be less indicative than the value. This can apply to potential discounts below market rates, as well as simply what you get for your dollar. Price per square foot and price to rent ratio are common ways to measure this value. In other words, for the amount you have to invest, can you get a three-bedroom house and five acres of land, or a tiny micro condo? What are the spreads between what you are paying and the cash flow coming in each year?
Few, if any analysts have been through times like these before. Yet, these principles and the importance of using these fundamentals to evaluate markets to invest in hasn’t changed.