While no one wants to be average, researchers often get stuck devoting a lot of time to ascertaining "average" household income, "average job growth, "average" drive times. Do you really care if the outputs of demographic research represents the mean, median or mode? Probably not. What is it we really need to know? Trends... we need to know the trends.
In 2013 multifamily developers will deliver approximately 160,000 new multifamily units into the marketplace. In 2014, this number is expected to rise to 350,000. Now that's a trend worth noting, particularly if one, three or five percent of this total is coming into your marketplace.
When it comes to changes in population and income, focus on the market or trade area most affecting your assets: focus on the submarket. Extended research has proven that almost 50% of future yield is determined by submarket trends. So while its nice to know the direction of trends occurring in Chicago, if your assets are in Schaumburg (over-stating the obvious) then focus on Schaumburg.
Submarkets represent the area where a property must compete.
A Submarket includes the subject property and the geographic area encompassing directly competitive properties. An extended definition includes the the geographic area encompassing directly competitive properties and the area where most existing tenants commute for jobs- not just for your property, but for all properties in the submaket.
The shape of the submarket will seldom be round or square. Make sure to note natural and man-made barriers such as freeways or one-way streets that funnel traffic in a certain way either towards or away from the submarket.
How to avoid being "average"
The way to avoid average numbers is to focus on annual percentage change at the submarket level. If creating your very own submarket is a struggle, then utilized block group and census tract data to get the ball rolling. And while is it all very nice to have everything drawn up on a computer generated map, swallow your pride and buy a paper map to begin the process and mark it up!
Knowing the direction of change.
There are two consistently overlooked areas in market demographics research in multifamily; one is knowing what we have, the second is knowing the direction of change. A BIG part of what we have and/or what we are buying with an investment in a multifamily asset is an investment into an area that represents a certain demographic profile. Ignoring this is like flying blind: you can do it for a minute but the long-term effects are disastrous.
The remedy to flying blind (demographically speaking) is to perform an analysis of the in-place population looking at population trends that includes the number of people, their household income and average family size (this is a starter list but one that has easy to find data). Year-over-year... which way are the numbers going? How many years can you accurately determine? Can you create a trend, or projection, going forward from your findings? Doing so will place you miles ahead when making investment decisions.
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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
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