How To Perform Due Diligence On A Market

What should mobile home park investors be looking at when evaluating markets to invest in?

Make no assumptions when it comes to where to invest. Sophisticated real estate investors conduct thorough market research before investing. They know that all real estate is local, and winning property investments are all about “location, location, location.” So what factors do savvy investors look at? What indicates a good market to invest?

#1. Landlord Friendly States

Intelligent buy and hold real estate investors will normally filter out and focus on states based on their bias for ruling in favor of landlords versus tenants. Even if you plan to resell your acquisitions relatively soon this will be a factor for the next buyer too. Some states like Florida are friendlier to landlords. Others such as Massachusetts are decidedly in favor of tenants. If you don’t want tenant issues, look for states with legal systems in your favor.

#2. Top Ranking MSAs

Once states have been shortlisted investors often boil their search parameters down further by MSAs. Larger Metropolitan Statistical Areas are seen as being more sustainable and profitable. Larger population concentrations generally foster more transaction activity, and in turn price appreciation. They may also be more stable over the long run compared to a small rural town which could more easily go bust and become a ghost town in a very short period of time. More people also suggests more demand for rental units, lower vacancy rates, and the potential for faster rental rate increases.

#3. Trend Setting Stores

Certain stores are known for leading growth in new areas. It could be that their research enables them to move into areas which are about to explode. Others argue that certain brands drive real estate and population growth. Both may be true. Some examples of this include Walmart, Home Depot, and McDonalds. Recent data even shows that real estate located nearer a Starbucks is worth more than other properties.

#4. Increasing Population

Population growth is incredibly important to real estate investors. There may be some well-established communities in the US which are actually beginning to age and die off. Others have proven to growth decade after decade. Population growth is directly linked to demand for rentals, and rental rates. Wikipedia offers a quick resource for tracking the population of a given city. For example; check out Jacksonville, Florida and you’ll see the US Census reports positive population growth dating all the way back to 1850, with the exception of one year (1960). Another tool for getting further ahead in the data is U-Haul trends. U-Haul regularly ranks top destinations and measures the moving volume in and out of cities.

#5. Increasing Employment

Strong employment not only dictates the ability to rent and for how much, but also how tenants will perform. Clearly mobile home parks are unique in that they can benefit and thrive in tough times, but if people don’t have money to pay, or end up leaving town for jobs that can be a challenge. Remember that “a rising tide lifts all boats.” The United States Department of Labor, Bureau of Labor of Labor Statistics reports on local unemployment rates and rankings.

#6. Diversity of Employment

Diversification and type of employment and industry is critical to the sustainability, consistency, and growth of real estate fundamentals too. Look at what happened to oil reliant towns when oils prices crashed. It means significant layoffs. Without a good balance of industries entire metro areas can go broke. Look at Detroit to see how bad it can get. The end of the auto industry literally bankrupted it, and has left much of the region as ruins and urban war zones. Despite its prominence Silicon Valley is incredibly reliant on tech. A bursting of a tech bubble could certainly have a significant toll. Again it is important not to make assumptions here. Look at the facts. You may be surprised what areas are actually both responsible for a significant amount of agriculture, imports and exports, technology, manufacturing, and financial services; all at the safe time.

#7. Type of Employment

How about the balance of outsourced work versus work that cannot be outsourced? Brick and mortar industry which is hard to move may be a good sign. Is this market supported by organizations that can’t afford to move, or can’t do their work elsewhere? Is the talent pool so strong that other businesses will come to feed on it?

However, it may be wise to take a more up to date view of this dynamic given the current transition from the industrial era. If a destination becomes too expensive and work can be outsourced, there could be a significant flight of jobs and population. The opposite can also be true today. The majority of the population is no longer tied to the urban core or major business cities for their ability to earn and provide. If individuals can live further out, get more real estate for their money, and not earn any less, they will be drawn to that. This doesn’t have to mean suburban or rural either. Back in Detroit the city erected a giant sign calling the world to outsource their work to Motor City.

#8. Occupancy Rates

How strong are local occupancy rates? Higher rental occupancy rates secure consistency in income, increase property value, and provide to raising rents and being more selective in tenants and terms.

#9. Affordability

When surveyed analysts replied that they believed the single most important factor for real estate was affordability. While mobile home parks might weather a lack of affordability best, this can impact gross income potential. How affordable are properties? Are wages strong? Is the destination affordable enough to keep attracting smart money and serious employers?

#10. Trends

What other trends are in play? What trends could affect a potential acquisition during the time you plan to hold it? Is the destination becoming more or less fashionable? Who is buying and holding property here? How will that matter if the economy goes south, a foreign economy goes under, or currency exchange rates change? What about property taxes? Are they headed up or down?

Summary

There are a number of fundamentals that savvy investors look at when selecting a market to invest in. Never make assumptions if you want reliable investment returns. Fortunately the internet can make it incredibly fast and easy to dig up the data.