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  • Writer's pictureZach Gendron

10 Key Metrics That Determine A Great Real Estate Syndication Market

For folks that aren’t familiar with Real Estate Syndications, it involves multiple investors pooling their capital together to purchase no-hassle, hands-off investment properties that deliver passive income and appreciation to the investor.


Arguably the most important factor to evaluate when selecting a real estate syndication investment is the local market of the target property. The age-old axiom of Location, Location, Location has stood the test of time for good reason. The question is, how do you select the markets that you want to invest in?


Let’s explore how the 10 key metrics below can help determine the strength of a particular market and how to find them:


1. Rent Growth


  • Why it’s important: Rent growth contributes directly to the profitability and value of an investment property. Rents can be raised by renovating and improving the units but they can also be raised organically due to the market being able to command higher rents due to its desirability among renters.



2. Job Growth


  • Why it’s important: Job growth is indicative of a healthy local economy that’s likely attractive to new businesses, developers, and residents to the area. The more jobs, the more residents, the more likely the area will maintain a strong tenant base.



3. Population Growth


  • Why it’s important: Population growth increases demand for housing which helps push home and rental prices higher. Finding a market with long-term population growth is key as it also makes that market attractive to employers.



4. Employer Diversity


  • Why it’s important: Employer diversity is key from a risk mitigation perspective as a concentrated employer or industry could lead to tenants not being able to afford their rent if there is a downturn (i.e. what Covid-19 did to tourism). It is considered a good rule of thumb to have no single employer in the area employing over 20% of the population. A diversified job market is much more attractive as a downturn in any single industry wouldn’t affect the area as a whole.



5. Personal Income Growth


  • Why it’s important: Personal income growth determines if tenants can afford the increases in rent that are needed in order to execute the business plan for the investment property. When personal income is rising, tenants can choose to upgrade their living situation by moving to renovated units and nicer apartment complexes.



6. Cost of Living


  • Why it’s important: Cost of living helps determine how much tenants need to spend in a particular market for categories other than housing. The less someone is paying for food, transportation, utilities, health and other categories the more they can afford to pay for housing.



7. Business Environment


  • Why it’s important: A business-friendly State and City can help attract more employers and increase the job growth in a particular market. Markets that make it difficult for businesses to start and operate, risk employers and their employees relocating, which can lower demand and create pressure on rental prices.



8. Taxes


  • Why it’s important: Taxes (both State and local) can make a significant difference in the profitability of a real estate investment property. Finding a market that has low taxes will increase the cash flow and value of the investment property.



9. Government Regulations


  • Why it’s important: Government regulations influence the ability of the property management team to evict tenants and impact the speed at which renovations can be performed, as those can be slowed down due to permit issues. Finding a State and local government that allows the sponsor to execute their business plan without friction is key to the success of an investment.




10. Quality of Life


  • Why it’s important: Quality of life determines how attractive it is for people to live in a particular market. Crime, opportunity, affordability, education, climate and many other factors determine whether a market provides enough value to justify the cost of living for that market. The higher the quality of life, the more likely the population is to increase.



Conclusion


These 10 key metrics help investors compare properties in different markets and determine which ones are most likely to support the best investments. This is why our team here at Limitless Investing does our own due diligence and research on target markets, so we can evaluate which ones are the best for our investors to allocate their capital. We also independently review every syndication opportunity prior to sharing with our investors, to ensure they are only receiving high-quality, pre-vetted opportunities.


Interested in Learning More?


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