It’s a huge advantage for an investor to buy across different markets. Multiple markets open up additional purchasing opportunities, rather than introducing limitations. It gives you the ability to pick and choose the best of the best.

But the bigger win is lowering risk within your investments.

There are lots of ways to balance your portfolio in real estate. Diversifying can take many forms, such as unit count per property, economic class, type of rental,or geography.

But let’s focus on geography. What do investors need to know before investing in a new market?

What Investors Need to Know About a New Market

Local Deal Flow

Most wholesalers and commercial brokers operate in specific regions. When looking to acquire properties in an area, establish relationships with the local folks. Once you buy a property there, brokers and wholesalers will be much quicker to work with you in the future.

Rent Estimate

Rent is something that will obviously change from location to location. We find local property managers to be an ideal source of accurate rent estimates. This is especially true if they will be managing the property you’re looking to purchase.

The property manager has a vested interest in giving you a real number since they have to place tenants. Wholesalers and agents can be very shady with estimates since they simply want to see a deal close.

Seasonality

Certain regions are impacted greatly by seasonal fluctuations. Potential tenants may be sparse during certain times of year and plentiful during others.

For example, we manage and own college housing in a town dominated by the local university. Most students search for housing from February to May and sign a year-long lease. If you miss that time slot, it’s very hard to find tenants.

Historic Preservation

We have found that certain municipalities and cities have very strong historic preservation initiatives. On the positive side, these can provide tax credits. But preservation councils may prevent certain construction projects.

For example, a new construction team is working on a development project in Lancaster, Pa., where they want to level a historic building. The historic board is making it very difficult for the development team to get the project approved.

Evictions

Each state (and even some cities) has their own specific eviction process and rules. It’s really important for owners to get to know the local eviction legal process.

Many will argue that filing evictions is the property manager’s job. But investors should also understand the local process prior to acquiring an asset. Even if they employ a property manager, it could dramatically impact your first three to six months of ownership if evictions drag out from hold-over tenants.

Inspections

Inspection policies also vary. We see city inspections range from every year to every four years, while many towns don’t have an inspection at all. Inspections are important as you forecast deferred maintenance that an inspector may require to be changed.

Codes

Just as important is knowing local codes. Local codes are even more critical in the multifamily space. Fire alarms, sprinkler systems, elevators, and electric codes can be very costly to change.

We had an instance where a codes officer told us a property needed a sprinkler system. The property was actually grandfathered into not needing a sprinkler system unless new construction started. That would have been a very expensive project had we not known the local codes!

Weather

Weather can be an issue when it comes to managing properties. Snow, extreme cold, wind, and hurricanes are all classic examples of weather-related issues that need to be planned for in both the pro forma analysis and the management operations plan.

Parking lots are an interesting example where weather plays a unique role. Keeping the pavement in decent condition and clearing snow are more complex tasks in the Northeast and Midwest compared to the South.

Economic Development

It’s crucial to understand where a city and even individual blocks are moving in terms of economic development. It’s key to learn about both long-term changes in a local economy and also more recent trends.

What other considerations do you take into account when exploring new markets? 

Article Source: https://www.biggerpockets.com/