Your Advanced Guide to Real Estate Investing
The six-point location analysis & real investment examples
By Brian Gubernick, Chief Real Estate Officer, PLACE
There’s a cliche story out there that was also mine 20 years ago about an accountant with a decent job and savings who still finds himself wondering, “What am I going to do with my life?”
At the beginning of my real estate journey, I began channeling a bit of my savings into house-flipping, speculating on new builds, selling quickly, and generating revenue because my motivation was only to generate the income I needed at that time. When my real estate activities proved to make more money than my accounting salary, I committed to real estate full-time. I’ve been a real estate agent, team leader, national team owner, and coach, all of which have shaped the way I invest in real estate today as I continue to build my investment portfolio.
Start with your homefront and network
It’s wise to make your first real estate investment in your backyard. I had more peace of mind because I could drive by and know the pros and cons of the neighborhood. When I knew my market well and wanted more opportunities, I didn’t jump into another state to become a real estate investor. Instead, I went to the next primary market in my region, a two-hour drive away, so I still had the proximity to check on the rental property personally while also expanding my comfort zone. Now, as a seasoned investor, whatever real estate market I’m in, I am neutral, steering away from competitiveness and investing where I know trustworthy professionals. My goal is to build relationships with property managers, cleaners, and contractors who will welcome me to the market and share their local insight, like investment opportunities and local connections. It’s important to know that no real estate empire has ever been built alone, and building relationships in your network will also help to avoid common pitfalls.
Assessing a potential investment’s location
Over the years, my objective with investment properties has changed from generating income to accumulating assets that produce passive income. When I invest, I’m most concerned with the potential cash flow, appreciation, and equity, and I’m less concerned with the initial property value or short-term impact on my net worth. But that’s not every real estate investor’s journey. Define your own mission and plan. Everyone wants passive income, but what does that mean to you? That understanding will add motion to your real estate investment journey.
All real estate investments must be done with caution. There are great real estate deals everywhere, but before investing anywhere, even in your own city, conduct a thorough analysis of the area. None of the factors alone can break a deal. You have to weigh each to find the best investment opportunity.
Your Six-Point Location Assessment for Real Estate Investors
- Local government
Before investing in a new location, read into the municipal restrictions and learn the local rental laws, ordinances, and regulations. Research how influential the local government is and how much of the job market it produces. Reach out to an escrow company or a loan officer in that area and ask them about the local policies and perspectives on landlords and tenants.
- Health services
Look into the density and quality of hospitals, specialists, urgent care centers, and clinics. The medical industry has a strong job market and signals community growth. Access to health care impacts the local community’s quality of life and future. Older populations are increasingly opting to sell and become renters who, like buyers, also want to be near a top-notch medical facility.2-3
- Education
Search for universities or colleges in the area to target both student and faculty housing. Colleges are reliable, long-term employers who create a pool of renters and market demand that wouldn’t exist otherwise. A few things to consider: you have to budget for college-town investments financially and emotionally because students don’t always prioritize things like cleanliness and maintenance. However, 61% of college students plan to stick around post-grad and find a job in the area, adding financially stable renters and demand to your investment market continuously. 1
- Schools
Inspect the local districts’ reputations and grades; just like buyers, 30% of renters have children under the age of 18. Most of those buyers were considerate of the school district and the convenience of the schools’ proximity. We can assume some renters have similar feelings. 2-3
- Migration patterns
Stay up-to-speed with domestic migration trends. The bulk is relocations within a county, while longer-distance moves cause net flows and outflows of people between counties and states.
I study U-Haul® truck migration reports, something I wish I had dug into earlier in my real estate career. U-Haul’s 2022 transactional data confirmed that Texas, Florida, and the Carolinas were the top hot spots for one-way truck customers, while California, Illinois, and New York saw strong demand for long-distance equipment migrating out of the West Coast, Northeast, and Midwest. 4
I now enjoy trying to stay ahead of the trends by watching areas grow and then investing there before the migration trend snowballs into higher demand for my rental properties. I’ve found that an increasing population in counties or states signals the potential for increased demand, lower vacancy rates, and higher rent rates. On the other hand, investing in an area with a gradually decreasing population can be risky for anticipated rental income.
- Determine your ROI
Use the cash-on-cash formula to determine how much cash income you can earn from your investment on an annualized basis: Annual Net Cash Flow / Invested Equity = Cash on Cash Return.
This is something experienced investors do, and you learn to do on the fly when first determining if an investment is worth digging into further, regardless of whether it’s a single-family home, multifamily property, or even an office building. It’s a red flag for me if those numbers don’t work out favorably since my objective is cash flow.
There’s more to real estate investing
As the world of real estate investing constantly evolves, it becomes paramount to approach our objectives, research, and analysis with serious thoroughness. As you grow your real estate portfolio, I invite you to stay informed and inspired by joining me on my podcast, No Days Off, so you don’t miss insights like these.
Tune into Brian’s podcast, No Days Off, at nodaysoff.com.
Sources
- Tallo Data Insights. (2022, May 10). Where do students want to live after graduation? Tallo.
- Dalrymphle, J. (2019, April 8). The number of older renters in the US is skyrocketing. Inman News.
- Copyright ©2023 “2023 Home Buyers and Sellers Generational Trends Report.” NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission.
- U-Haul® Newsroom. (2023, January 3). U-Haul Growth States of 2022: Texas, Florida Top List Again. U-Haul International.
