You're listening to the Master Passive Income Podcast Network.

Hey, guys, Charles Seaman here with Erica McNew for the Master Passive Income Multifamily Podcast.

And if you want our commercial real estate success guide, you can text the word freedom to 33777.

Today we're going to be talking about a really important topic in multifamily finding the right location for your multifamily investments.

Welcome to the Master Passive Income Multifamily Podcast where we guide you to invest in commercial real estate with a special.

Focus on raising money from others to buy bigger and better deals.

And now, here are your hosts, Charles.

Seaman and Erica McNew.

Erica, do you want to share one thing that people should be looking for as they look for multifamily investors?

Yeah, absolutely.

So you're getting started on that multifamily journey or you're looking for another acquisition.

And one of the most important things, I think is market trends.

So you're looking at job growth within a certain area.

And when you're looking at a particular asset for acquisition, I think it's really important to get into the logistics and the details of, like, where are your tenants coming from?

Where is your, you know, avatar tenant coming from?

Where do they work?

What are the employment centers that are around that building?

I think that's really important, especially on the larger multifamily chatgpt.

You know, that's one of my friends.

And so I always plug that in.

You know, what are some of the jobs and infrastructure in this location?

And it's always great.

It gives you kind of a good base of some of the companies that you can then look into.

When I see those companies that are bigger employers within a particular area around an asset that I'm looking at for acquisition, I am really comfortable.

If I see them putting more money into development, that's always a good sign, right?

And so market trends is something I think is important.

You're also looking at population growth, and within that, even more.

So you're looking at population growth, you're looking at the average size per household, a variety of different data points, and then developments.

I think like, that's why a local real estate agent is so important, because it's critical that you know what development is going in, where and when and what point of the process it's in.

So that's one of the first things I educate my multifamily investors on, is some of the areas that we can anticipate appreciation and more housing demand based on some of the developments that are going In.

So that's some of the things that I see with like market trends.

What about you, Charles, what do you think?

I think those are actually some really good points.

You know, you gotta follow the jobs.

People move where jobs are.

So if there's an employer and they're bringing a lot of, a lot of jobs, especially if they're high quality jobs, you're going to see people that actually migrate there because that's where they need housing.

People want to live close to where they work and they want to be working with jobs for plentiful.

So that's definitely some great insight.

One thing I would also say, aside from population growth is household formation growth.

And I think too many people focus on population growth and not enough on household formation growth.

So somebody might ask, well, what's the difference?

Well, population is each individual person, right?

So you have, if you have two people, regardless of their living situation, your population is two, but household formations are different.

So say you have the same two people, but each person is single, they don't have any children, they're not rooming together.

So now you have two separate housing units.

So a household formation is going to be demand for housing in the area.

So definitely those market trends are absolutely.

So another thing is demand, right?

You got to look at local rental demand in the area.

So what do you want to see?

Well, ideally, if you're buying in an area, you want to see lower vacancy rates because that's drawing demand.

Now are there times when there could be a buy in areas that don't have that?

Sometimes, but only if you can see there's already a clear path in progress.

If there's not, you're only buying a riskier property.

That's going to be tougher.

Do you agree with that, Erica?

I do.

And I guess, like, what do you see as far as like acceptable vacancy rates in a particular market?

Well, ideally you want to be somewhere between 5 and 10%, is what I would tell you.

Most times in the last couple of years, I think a lot of people probably got very spoiled with sub 5%.

That's probably not sustainable in the long term.

Now in some markets they're obviously, you know, every market's going to be different, right?

So it's going to be different.

If you're looking in Charlotte, North Carolina or Indianapolis, Indiana or Los Angeles, they're going to be very different markets and each one's going to have different numbers you're looking for.

But generally somewhere in that 5 to 10% range I think is realistic.

You know, a lot of the Sunbelt freezing markets are double digits right now.

Now, most likely that's not going to be a long term trend, it's a short term one.

But there's a lot of new supply, so it's going to take time for that to absorb.

Very interesting.

And I guess also some of those data points that I look at within, like a location economic analysis, when I'm doing one of those for a specific location would be the amount of units being built.

So that you can also measure the household formation.

Right.

How many people are owning versus renting, and you're measuring that against how many units are being built and you're at the trajectory of how much that's keeping up and if there's going to be a deficit or not.

So I think that's another one of the data points on the LEA that I pull up that I think is also important.

And when you get familiar with those data points, especially as a market snapshot, you know, it's super easy to look at one and go, okay, this is a market I want to explore investing in, or this is a market that I'm not going to invest in.

And I think getting good at looking at those data points is really important for investing in multifamily.

Absolutely.

And one of the data points I think also just the renter profile.

Right.

So what does the renter look like?

So what are their income demographics?

So if you're buying a luxury property, but it's in an area that has, you know, workforce, housing demographics, it's probably not going to be a great mix.

There's some properties that I've been looking at lately that, you know, they're, they're nice, you know, what you call class A property, luxury buildings, all the latest amenities.

The problem is the developers may have been a little ambitious with the areas they built them in.

And maybe they thought these areas would gentrify.

And they might gentrify, let me be clear.

But it might just take longer than they anticipated.

So because of that, their vacancies are higher and these properties are being sold cheaply.

So you have to really understand what that demographic is and does it line up with what you're buying?

Absolutely.

And I will add to that that I see also sometimes properties that are located near military bases.

And for instance, there was in Vicksburg, Mississippi when I was driving my Tesla to Austin, Texas From Charlotte in 2022, some of the homes were selling for 80 grand, were renting for as much as 1400amonth.

And I'm like, what is this Magic that's happening over here.

And it was because they have the Army Corp of Engineers there.

And what, you know, analyzing something like that, it's like, okay, is this a wise investment based on that's basically the only employer for the entire area.

Right.

Like there is no other economy outside of that almost for that area in that location.

So would a larger multifamily asset make sense to invest in that area?

And then again, you're looking at market trends.

Army Corp of Engineers was actually purchasing land to continue development and you could see they had a very strong development business plan to remain in the area and expand in the area.

So because of something like that, perhaps it would have been a good investment in that area.

So I think that's also something I look at.

For sure you touched on something really important.

So you want to be investing in places where you have diverse economies.

Now with single family, that's important, but it may not be as important because you're trying to fill a single unit.

When you're in multifamily, Whether it's a 20 unit or a 200 unit property, you're trying to fill units at scale.

So you want that economic diversity because there's a higher probability that you're going to have more vacancy if you only have a one trick pony type of economy.

Now for many years, Las Vegas has had a reputation as that.

Las Vegas is actually a lot more diverse now than it used to be.

At one time it was truly entertainment and gaming.

Now that's about 30% of the economy, which is still a big chunk, but it's a lot more diverse than it used to be.

The same thing with Detroit.

Detroit's got, you know, heavy reliance on the auto industry.

So you want to look at those things and factor them in.

Does it mean you shouldn't buy property in that area?

No, but you got to make sure you do your homework and you feel very confident and that you're buying it at a price that reflects whatever that risk is.

Right, right.

And I guess also calculating in whatever you could predict for vacancy rates based on that if you were going to purchase that asset, calculating in higher vacancy rate, potentially.

So yeah, very good points.

Yeah.

And another thing you want to look at is affordability.

So there's two major issues we have with housing throughout various markets in the country.

We have a supply issue in some cases and in other cases an affordability issue in some cases both.

So why is affordability important?

Well, if you're looking to charge $2,000 a month rent, but you're in an area where the Median income is 32,000, it's probably not going to work.

What's going to happen is you're going to constantly be replacing tenants because you're going to have people that are always being evicted and you're going to be spending more money turning units than doing anything else.

So most people aren't underwriting deals that way.

So you really want to make sure that the affordability aspect is there and that whatever rent you're looking to charge is in line with the income for the area.

And I would say being very conservative on those numbers as well, for sure.

And that's where having a good team, no matter what size multifamily you are looking to acquire, having a really good property manager is so important because beyond just what a real estate broker can tell you on rental rates, property managers will know a lot more these kind of details.

And so it's again, really important to have a good work team when you're doing this kind of thing, to run that kind of stuff by people.

Totally.

So what else do you want to look for?

Well, let's talk about neighborhood characteristics.

Areas that are walkable with amenities like shopping and dining and transit.

Why is that important?

Well, it's important because a lot of people that are living in these apartment buildings and these communities, they want things that are accessible to them.

Yeah, they're moving there for convenience.

If they wanted space and isolation, they'd be moving out of the city and they'd be going and buying or renting a house.

But in this case, they're looking for city living.

They want convenience, they want amenities, and they want things that are close to them.

You know, if you notice the most in demand areas in most cities usually have a lot of conveniences in very close proximity.

That's not by accident.

Yeah, absolutely.

And I think that's becoming more and more important.

You know, you have your tertiary markets, your secondary markets, and your primary markets, which are your major cities.

And I think that as population growth happens in a certain area, like Charlotte, North Carolina, for instance, you know, we start to transition from a secondary to a primary city.

And I think within that, some of those transitions include people valuing walkability a lot more.

Right.

Because now we're looking for shorter commute times because to get from point A to point B is increasing due to traffic because of population growth.

So I think that also depending knowing what type of city you're investing in and where it's at as far as trajectory for population growth is really important as well.

How about crime rates?

Does that factor into the equation?

I think that factors into the tenant profile, to be honest.

And I think that it's important, as we've spoken about previously, that when I work with investors that are out of state, that are more passive investors and not as hands on, and I know they're not going to be as hands on with the asset, they probably don't want to purchase class D assets because they're going to end up with a tenant profile that could require a lot more work and it requires somebody to be more hands on.

So I think that crime, you know, it factors in a little bit, but really it factors into determining whether that's going to be your buy box in that area or not.

Because there's still, I think appreciation, especially depending on the city or location it's in, there should still be a decent amount of appreciation for somebody looking to buy and hold, particularly in things like opportunity zones.

Those are the good.

That's good stuff, Charles.

You know, I can go either way on opportunity zones.

So opportunity zones do have benefits, but I think it depends how active of one you're buying in.

You can buy in some that are dead and have nothing going on, and you'll probably see no appreciation in those areas.

But then you can buy in others that have a lot of activity.

And the area is totally gentrifying.

In 10 years from now, it'll be a much different, more valuable area.

You know, I mean, I'll use an example.

So for any of the listeners, I'm in Charlotte, North Carolina, and Erica's right around there as well.

So there's two opportunities.

I was in Charlotte.

One of those opportunities has a lot more activity than the other one.

So the one that has more activity, it's a slow change.

It's not going to be overnight, but in 10 years, you'll see that area be a lot more valuable because it's building new properties, it's creating new jobs, it's doing things that are spurring economic activity.

You really have as much activity going on.

So you may not see much of a change in 10 years.

Yeah, you.

The one with spurring activity at Lincoln Heights area is what you're referring to essentially west Charlotte.

So that one's got a lot of development, a lot of.

A lot of building, a lot of jobs.

That's happening.

That area is becoming literally more valuable overnight.

Yep.

And I think that development, the river district going in on the west side of the airport, we'll continue to see that appreciation over there.

Very interesting.

Good take.

Yep.

So then we have, aside from characteristics, you know, along the same line as characteristics, how about schools?

So depending on your demographic, that can be very important.

If you're buying a property that's going to have a lot of retirees, maybe that's not as important.

But if you're buying a property where your tenant is going to be families, a lot of them want good schools.

You know, they want to send their kids to schools where they're going to be safe schools where they're going to be getting quality education.

So that's going to factor into how desirable those are.

You agree?

I do.

And I use, I send clients to areavibes.com for like crime data statistics because it just gives it in a very user friendly format.

And then greatschools.org is a really good place to research the schools in an area.

They have reviews and ratings on each school.

So there's some great websites out there to research this stuff.

Yep.

So then we have housing policies.

And to me, this is actually the single most important thing that I look at whenever I decide if I want to invest in an area or not.

How friendly or unfriendly a tenant landlord was, that's a big thing and it's something that's going to have a large impact on how easy it is for you to manage your property.

So I'm originally from New York.

I would never invest in anything residential or multifamily in New York because managing there is an absolute disaster.

If you go upstate New York, it may not be so bad.

It's a lot more, a lot more landlord friendly.

But within the city it's tough.

You know, I have a lot of friends who have own properties here and they hear absolute horror stories of, you know, it takes you two years to get somebody out and sometimes more than that when you evict them.

So why is that important?

Well, every month that somebody's sitting there not paying your rent is a month you are losing money.

So it's a month that you're not collecting rent.

It's a month that your income is going down.

It's a month that you're having to come up with money to pay an expense or to pay the mortgage or to pay anything.

That's why Texas has become so popular in recent years.

In Texas you can get people out in about a month.

I haven't personally invested in Texas yet, but it's a very landlord friendly market.

There's not a lot of options for tenants who aren't going to adhere to the lease.

And that Makes it a higher probability of you being successful with those investments.

Yeah, absolutely.

And I also think tax laws, knowing like local, regional tax laws and all of those things I have, I know, like for instance, South Carolina charges a slightly higher tax for investment properties.

So knowing what your taxes are going to be on any given investment property in a particular area is really, really important as well.

And how that local municipality operates.

And I guess like even on multifamily, I see short term rental done.

Obviously that's something that is very regulated and that you always want to double check as well if that's a part of your strategy.

And it happens life cycles.

So in some of our previous episodes we talked about market cycles.

And real estate at its core is really a hyper local business.

So while there is a national and global market, it's really local and hyperlocal in some markets.

Literally.

Areas can change from block to block.

So you have to understand where you're buying and what you're getting.

And what you want to understand when you're buying is where is that area and where is that submarket right now?

Is it a market that's growing?

Is it a market that's already established?

Is it a market that maybe is declining?

I'm sure that anybody who lived in Detroit 80, 90 years ago probably never thought that the population would be a third of what it was then.

In 1950, Detroit had a population of nearly 1.9 million.

Now it's around 600,000.

So imagine if you buy a property in a market and you have that happen, what happens to that property's value over time?

Right.

It's very interesting.

And I guess I would also be careful of overestimating appreciation, for sure.

Especially if you're estimating that appreciation off of like development projects that are going on.

Because I've seen a lot of development projects not work out.

And I've seen people attempt to get ahead in development projects and purchase real estate strategically thinking it would appreciate.

And so you also want to be careful not to overestimate appreciation and growth.

Purchasing for today's value for today, for sure.

Yes.

Sound advice.

So as you're going through areas, another thing you can do is just use your eyes.

You can eyeball things.

What do you see in the areas?

Do you see a lot of properties in disrepair?

Do you see properties that are well maintained?

Usually those are indicative of the area.

You know, if you see a lot of properties in disrepair, if you see that the grass isn't cut, if you see the, the concrete is cracked and none of these Things are being repaired.

It probably tells you a good amount of what you need to know about that area.

Now, if you walk through another area and you see that the streets are immaculate, the grass is cut, everything looks good in the buildings, that tells you where you're buying.

So keep that in mind.

And depending on what your model is, either one can work.

But it's important to know what you're buying, and it's important to price it accordingly.

There are some people who like buying in those rougher areas, and I.

And there's people that do very well in those properties, but it's not for everybody.

So you have to understand what your model is and what's going to work for you.

Yep.

And I will say, I think being involved with local government is always really important because that's helped me also know what are my districts in my area and which district is struggling to get the attention that they feel that that district needs and which ones are getting.

You know, all of the development projects are happening and it's hustling and bustling.

So I think also being in tune with your local government, knowing where they're putting the money and where they're not putting the money and knowing your different districts, I think that's been very valuable for me on that as well.

Keep in mind, I mean, that's definitely great insight.

The government tells you where they want you to invest, so keep that in mind.

You know, with anything in life, you got to follow the money.

And taxpayers have a lot of money.

They may not realize it, but they have a lot of money at stake in these communities.

So when the government's starting to spend and to encourage people spending, if you can work against them or you can work with them, smart money's not working with them.

So keep that in mind.

Yeah, absolutely.

And how about some tools and resources?

So for rental price tracking, you know, sites like Zillow and Rentometer can definitely be great starting points.

You know, I would never use any site or any single data source as an end all be all.

But you can use them for reference and they can help you further research and study an area.

Yep, absolutely.

And then like I said, you can always get rental rates.

An agent can always pull it from your local mls, which is helpful.

DNA is a site that a lot of my investors will use as well.

Apartments.com you can get an idea of what things are renting for actively, and some of those are not in mls.

And then having a really great property manager that you can run things by because they're going to tell you things like, no, that unit will actually or those units will actually rent for $50 less adore.

And this is why, you know, and those are factors that, that they are the best ones to get that advice from.

Awesome.

Well, you know, I hope that we gave you guys enough to get Saudi as you find the location here.

And we're going to wrap this one up.

If you do want our commercial real estate success guide, you can text the word FREEDOM to 33777.

And that's all for this one, folks.

Thanks, guys.