Answer the following twenty-one questions about a specific address and you will likely know more than most local's including the people that live at that address! While many of these items may seem mundane or at best remotely interesting note the reason behind acquiring the knowledge. Informed decisions are made with superior knowledge.
1. What is the street address? An address is necessary to begin the process. No address, no place to begin the analysis. Everything we learn folds out from a certain place, a specific address. Begin with street address, add city, state and zip code. Knowing the zip code is important because so much "free" information can be garnered on a zip code basis.
2. Concentric Zone. Has to do with urban social structure. How is the area characterized? In the patchwork of America culture is the area known as "blue collar" or a cultural Mecca? This is is one of the first broad brush strokes in defining a place.
3. Radius in question (Market). Market studies often have the nice and neat one, three and five mile rings around a star that depicts the subject property. For housing, the "real" market area, the area from which you are drawing customers is seldom a 360 degree sphere.
4. Polygon (Trade area). A polygon is nothing more than a boundary. What makes polygon's interesting is building them accurately to "fit" the market area for a specific property.
5. Average Age of Population. Renters are usually younger. "Younger" is often defined by generational names like Gen X, Echo Boomers, etc. It's important to know the present day percentage of people within the market for an asset that can be described as "younger".
6. Median Age. This category tells us where people are on the income pendulum. People in their 20's and 30's (the primary rental group) have less income than older people with little time to build passive income to supplement earned income.
7. Household Size. A household is a dwelling where there is at least one resident. A household is comprised of all the people living in a dwelling regardless of relation.
8. Family Size. A family is a "household" where the people in the dwelling are related. Family size is getting smaller in the U.S. It's important to make the distinction between household and family size for a number of reason. Reason #1: Families move less. Second, household and family size for a particular area leads directly into a discussion of demand for bedrooms; the larger the household and family size, the greater demand for more bedrooms per unit.
9. Household formation. The pace of household formation is tied to job growth. The greater the job growth in an area the sooner little Bobby and Betty move out from Mom and Dad and start their own life in their own place.
10. Marital Status. It's important to know what percentage of people in your market are married because married people stay put longer be they renters or home owners.
11. Household Income (average versus median). There are a multitude of income statistics to choose from; per capita income, Household, average hours worked, etc. Whichever one you choose stick to it for all of your analysis- no jumping around. The objective is to compare apples to apples.
12. Educational Attainment. There is a direct correlation between personal income and educational attainment. Over-stating the obvious, people with a college degree make more money that those dropping out of high school.
13. Employment. The national unemployment rate of "X" percent is not indicative of every place. Some "places" have near full employment (with an unemployment rate under 5%) while other "places" are suffering at three times the national average.
14. Employment Type. Type refers to regular, short-term temporary, long-term temporary or seasonal. Regular employment is a forty hour a week job. Short-term temporary are jobs expected to last six months or less.
15. Home Ownership Rate. Home ownership rates are decreasing creating an expanding renter pool. More people looking for rental housing concurrent with limited new product is a crystal clear point towards higher rents.
16. Ethnicity and Race. Is this important? Should it be? I've mentioned in other posts about hearing from commercial buyers that have a stated preference for a particular race. In terms of making a buy decision, I would prefer to throw race out and focus on income and educational attainment. This cuts across all racial lines and tells me about the people that reside in a place more than race. After all, the color is green ($).
17. Primary language(s). Not to be skipped! Do not presume! No guessing! What is the primary and secondary language spoken in your market area? What percentage of the populous speaks these languages? We may joke that people from Atlanta and Seattle do not speak the same language, but people from Hong Kong and Shanghais really do not speak the same language.
18. Crime and Violent Crime. There is crime and there is violent crime. No asset is immune to crime. The question is to determine the type of crime. It may seem obvious, but areas that experience higher crime rates generally must offer lower rental rates to entice people to live there.
19. Housing Affordability. Affordability bounces, I mean really bounces from place to place. The rent versus own narrative is alive and well but more importantly if affects the value of income property. This information is imperative to assess the strength of a property within "your" polygon (#4 above).
20. Voter registration. Do affiliates of one party pay their rent better than the other? Probably not but it's important to know how your tenant base thinks and knowing political leanings assist in building your knowledge on this subject. We are a collection of red and blue states... and red and blue neighborhoods.
21. Insurance rating. There are a handful of cities in the U.S. with fire ratings so poor that the costs of insurance is prohibitive. And you can't tell the difference by driving down a few streets. Capacity to address fire hazard impacts rating. Contact a local commercial insurance agent to gain intelligence on the local property insurance marketplace.
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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. www.MultifamilyInsight.com