RG 028 – How To Choose The Right U.S. Market To Invest In! with Marco Santarelli

Reed Goossens
June 14, 2016

 

How To Choose The Right U.S. Market To Invest In! with Marco Santarelli

About Marco:

  • Founder of Norada real estate investments
  • Author of Ultimate Guide to Passive Real Estate Investing
  • Host podcast Passive real Estate Investing
  • Originally from Canada and got into real estate at 18.

 

Marco-Santarelli

 

Something unrelated to real estate investing:

  • Taught himself program assembly language at age 13
  • His daughter is home schooled to give a more rounded financial education.

 

Passive-Real-Estate-Investing-Podcast-250px

 

Nuts and Bolts:

Step 1: Understand the Different Types of Markets

There are three types of markets in the US, linear, cyclical or hybrid.

  • Linear markets: appreciate by a steady amount over time along with the headline inflation. Properties in these markets are bought for the cash-flow and are normally situated in the Mid-West and Texas.
  • Cyclical markets: move up and down like a roller coaster and are generally found in coastal regions of the US, San Francisco is a good example.
  • Hybrid markets: As the name implies, is a combination of the Linear and Cyclical, Typically these markets have historically been linear but with changes in employers and jobs (ie: the tech industry) these markets are now seeing healthy population growth. A good example would be Austin, TX, Boulder, Colorado, Charlotte, North Carolina, just to name a few.

 

Step 2: Market Identification

When researching a market to invest in there are several things to look out for;

  • Population: Invest in areas with a population is 750,000 or more in the MSA
  • JOBS: The local economy has to have at least 3 different industries for employment (ie: manufacturing, health care, tech, etc.). Don’t invest in a city that is heavily reliant upon one industry.
  • (A lot of mineral rich areas in TX and the Midwest have diversified since the crash in 2008 so as to ensure the longevity of their cities).
  • Look for Job growth & migration in the area; you want to see that the population is steadily growing over time (ie: people are constantly moving there for work opportunities).
  • Moderate CAP Rates: To achieve strong annual returns, the economics of the metro must be very strong yet the CAP rates of cannot be below 5.0-6.0%.
  • Affordable housing market and neighborhoods. Check the market rent-to-value ratio of potential investments in an area. An RV ratio is Rent against Value – the monthly rent divided into the acquisition price (presented as a %). If is less than 1% the property/area will be too expensive to cahsflow. Conversely is the RV ratio is over 1.5% the area could be a depressed market or a bad neighborhood. Ideally for good cashflow neighborhood 1.2-1.4% as a rule of thumb.
  • Landlord Friendly Laws: Investing in states where the laws favor the landlord is better for you as the investor; it makes the property managers’ job easier if you have problem tenants when it comes to eviction.
  • Thriving or emerging downtown: Since the crash in ’08 many tier 2 cities across the U.S. have had a resurgence in the ‘downtown’ area. This is due to changing renter habits; people are renting longer and they want to live closer to work and nightlife.

 

Step 3: Choose Two Markets: Analyze 25 Deals In Each Market

Once you have chosen two markets jump online (loopnet, showcase.com, craigslist etc) and start finding deals and crunch the numbers in a spreadsheet analyzer. Analyzing 25 deals in a market will help you get a feel for associated costs: avg. $/door, expenses ratios, trends in surrounding suburb, average rent/suburb etc. You will be an expert in no time!

 

Step 4: Visit the area before you invest!

Understanding the lay of the land is very important particularly if you are purchasing out of state. Visiting a market will help you establish your bearings and will give you a better understanding of the types of properties you will be purchasing.

 

Top Investing tips:

  • Most successful habit? Doing first things first, not the smallest or quickest.
  • Most influential tool in you RE business? Excel!
  • What’s the most exciting project right now? The Private Lending Program – people with money to invest lend their money to Marco to fund acquisitions with 15% interest.
  • Most influential person in your career? Robert Kiyosaki

 

Contact:

Website: www.noradarealestate.com or

through the podcast passiverealestateinvesting.com

 

Until Next Week! Happy Investing!

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