Brief Summary
This video provides a data-driven strategy for selecting the best cities and neighborhoods for real estate investment. It emphasizes the importance of using free, publicly available data to make informed decisions, avoid common pitfalls, and identify promising markets. The speaker shares ten "real focuses," five for cities and five for neighborhoods, along with practical tips and resources to help investors analyze potential investment locations effectively.
- Focus on data-driven analytics for real estate investing.
- Use free, publicly available tools to evaluate cities and neighborhoods.
- Apply ten "real focuses" to identify promising investment locations.
Introduction
The speaker expresses enthusiasm for Utah's investment potential, highlighting its favorable position for growth. He introduces himself as a technologist who transitioned into real estate, emphasizing his data-driven approach. He contrasts this with the exaggeration and false promises often found in the real estate industry. He recounts his early mistakes and his subsequent commitment to data-driven investing, which led to significant success. He aims to share a strategy for picking the best cities and neighborhoods using free tools, enabling viewers to become experts in areas they know nothing about.
City Real Focus #1: Population Growth
The first rule is population growth. For cities with a population between 250,000 and 1 million, look for a 20% growth between 2000 and 2017. For cities over 1 million, a 15% growth is acceptable, and for those over 2 million, 10% is sufficient. To find this data, simply search "population [city, state]" on Google. The speaker uses Detroit as a negative example, showing its continuous population loss. He contrasts this with Provo, Utah, which meets the population growth criteria. Columbus, Ohio, is presented as a positive example, with a 21% population increase.
City Real Focus #2: Median Household Income Growth
The second rule focuses on median household income growth. Look for at least a 30% increase between 2000 and 2016. Use City-Data.com to find this information. Columbus, Ohio, again serves as an example, with a median household income increase of approximately 30%. This growth is linked to job creation resulting from population gains.
City Real Focus #3: Median Home Value Growth
The third rule examines median home or condo value growth. Aim for a 40% increase between 2000 and 2016, using City-Data.com. Columbus, Ohio, demonstrates a 41% increase, making it a strong example. The speaker notes that some cities steal population from others, affecting crime and education levels.
City Real Focus #4: Crime Levels
The fourth rule concerns crime levels. On City-Data.com, look for a crime number below 500. Ideally, the number should be declining from left to right, indicating decreasing crime rates. Columbus, Ohio, shows a consistent drop in crime. High crime levels are linked to delinquency and eviction costs, which can destroy profits. Orlando is mentioned as an exception due to its significant decline in crime.
City Real Focus #5: Job Growth
The fifth and most important rule is job growth. Focus on the last 12 months of job growth data from the Department of Numbers. Avoid cities like Midland and Odessa, Texas, which fluctuate wildly with oil prices. Reno, Nevada, and Colorado Springs are highlighted as positive examples. The speaker discusses the "twin cities" trend, where cities benefit from proximity to larger ones, such as Sacramento benefiting from the San Francisco Bay Area. Provo, Utah, is also recognized for its strong economy.
Neighborhood Real Focus: Introduction
The speaker transitions to neighborhood analysis, emphasizing that even great cities have bad neighborhoods. He stresses the importance of selecting a decent neighborhood to maximize investment success. He explains how to use City-Data.com's map feature to analyze neighborhoods.
Neighborhood Real Focus #1: Median Household Income
The first neighborhood rule is to target areas with a median household income between $40,000 and $70,000. Incomes above $70,000 often indicate fewer renters and lower cap rates. The $40,000 lower limit is based on data showing that delinquency spikes below this level. The speaker cautions against turnkey products in areas with very low incomes.
Neighborhood Real Focus #2: Median Contract Rent
The second rule is to look for a median contract rent between $700 and $1,000. Rents above $1,000 can lead to cash flow issues, while those below $650 may result in inconsistent rent payments. The speaker notes a tight band between $700 and $1,000 in most of the U.S., with exceptions in expensive areas like New York and Seattle.
Neighborhood Real Focus #3: Unemployment Rate
The third rule involves the unemployment rate. Do not invest in areas where the unemployment rate is more than 2% higher than the city's rate. Class C areas may be up to 2% higher, while Class B areas should match the city's rate. This helps avoid excessive risk during economic downturns.
Access to Data and Resources
The speaker provides instructions on how to access the data and resources mentioned in the presentation. Viewers can text "RETOOLKIT" to 44222 to receive an Excel spreadsheet and a Word document with the rules. He also mentions a trends presentation and other valuable videos and articles available on multifamilyu.com.
Neighborhood Real Focus #4: Poverty Level
The fourth rule states that the poverty level of the neighborhood should not be above 20%. The speaker prefers to stay below 15% to minimize delinquency. He emphasizes that real estate is hyper-local, with significant income disparities possible within short distances.
Neighborhood Real Focus #5: Ethnicity Mix
The final rule is subjective and concerns the ethnicity mix. Look for a pie graph with multiple slices, indicating a diverse population. Avoid neighborhoods with a single dominant ethnicity to improve rental prospects.
Conclusion and Q&A
The speaker concludes by asserting that the information shared puts viewers in the top 1% of investors. He opens the floor for questions, addressing topics such as investing near universities, underwriting, minimum metro size, the impact of technology, opportunity zones, and future trends. He emphasizes the importance of considering future trends in addition to current snapshots.
