How Do We Select the Markets We Invest In?

When it comes to apartment investing, selecting the right market is crucial.  The specific property may be amazing, but if it’s located in an undesirable market it’s very difficult to make it succeed.

Given this fact, how do we go about selecting a great market to invest in?  There are a number of factors we look at, when taken together make the business case for or against why to invest there.  Let’s talk about each factor:

  1. Population Growth – If the area isn’t seeing population growth (or at least population levels maintaining), then people aren’t moving there.  People moving to new places is a huge driver for finding an apartment, so it’s a huge focus for us too.
  2. Job Growth – People usually move to where there are jobs.  Having a strong job market is critical because those jobs are what’s going to help the guest pay the rent every month.  This is a top driver for us when looking at areas to invest in.
  3. Job Diversity – The diversity of jobs and employers is also a great sign.  We tend to avoid markets where one major employer dominates the area.  Why?  Because if there’s a issue with that employer, many people in the area are affected. 
  4. Landlord Friendly – We focus our search in markets that are landlord-friendly which have laws, practices or lower operating costs that benefit the interests of landlords.  This does not mean that tenants are mistreated.  Rather, landlords have broad authority to properly oversee their rentals.  Cities or states that are not landlord friendly make it very difficult to succeed in apartment investing.  We avoid states like California or New York for this reason.
  5. City Investment – Are new stores being built?  Is a new mall coming to town?  Is a new hospital going up nearby?  These are all signs that growth is coming, which is a great indicator of positive things to come.
  6. Weather – Areas that have warm weather aren’t a requirement, per se.  But we do take into account areas that tend to see weather problems on a frequent basis.  The usual culprit here is hurricanes.  Not only can they inflict tremendous damage, but the insurance rates we must pay are sometimes 2-3x higher than non-hurricane zones.  It makes the business case difficult to justify.
  7. Obstacles to New Supply – We also like areas where there’s some sort of limit to new apartments being built.  It’s not a deal breaker by any means, but it helps to know who the competition will (or will not) be for the years that follow.

Now that you have a sense of the largest factors we consider, let’s look at one of our first investments of 2022 located in Jacksonville, FL and see how it compares with the factors above.

  • Jacksonville has been on a tear in terms of population growth.  All of Florida saw population growth during the pandemic and it continues to be strong today.
  • It’s also growing in terms of jobs, and the diversity of jobs is excellent.  No one industry employs more than 20% of the workforce, so jobs are very diverse.
  • The city (and the State of Florida overall) is landlord friendly, so there aren’t concerns of state of local governments enacting laws that hurt our ability to make the investment a success.
  • The immediate area where the property is located is also growing in terms of shopping, infrastructure, and basic services.  Again, a great trend that supports our decision to invest there.
  • Jacksonville is in Florida, so it is susceptible to hurricanes, but according to FEMA it gets hit less than other coastal areas in the state.  Insurance rates in there are higher than the average but still reasonable.
  • Depending on the specific area in the city, there is more or less opportunity for competition to enter based on available land, already occupied land, etc. 

As you can see, Jacksonville is a great area for investment that really nails it for some of the largest factors we look at, but it’s not perfect.  The point here is that few markets are perfect across every metric.  We look for areas that nail the most important factors and hopefully most of the more minor factors as well.

That’s why, in 2022, we invested in properties located in Jacksonville, Ft. Worth and Atlanta. These are all areas that score very well on the factors listed above.