Why Smart Multifamily Investors Think Locally, Not Nationally

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Many people discuss national real estate trends, often citing articles filled with data analysis, averages, and medians. These articles sometimes include city or market-specific data as well. However, savvy real estate investors know that real estate is extremely local.

A particular city might defy the national trend, and even a specific neighborhood might deviate from the city’s trend. Therefore, understanding neighborhood-level dynamics is crucial before making any investment decisions. In this article, we will explore the hyper-local factors that cause neighborhoods to behave differently.

Closeness to employment

Years ago, I was about to buy a single-family home in Haslet, TX. At that time, the area was considered remote, and property prices were relatively low. However, I knew Amazon was planning to build an Amazon Air facility and a nearby warehouse, which I believed would be a game changer for the area.

This development would create new employment opportunities and boost the local economy. And that’s exactly what happened. Rents skyrocketed, and my investment is still performing exceptionally well.

One cautionary note: it’s not advisable to invest in an area based solely on speculation or a single data point like this. The investment would have been good even without the Amazon Air facility, which is why I chose to invest. However, the Amazon Air facility undoubtedly helped the area thrive, regardless of the broader DFW market trends.

Migration of People

Many have discussed the great exodus from California, and there is a common belief that people are leaving the state in large numbers. While this may be true to some extent, there is another trend worth noting.

The fact is that beach cities in California are more expensive, leading to a migration from these areas to inner cities. During COVID, many people moved from beach cities like LA to inner cities such as Bakersfield and Fresno.

This migration will fuel the economies of these inner cities, causing them to perform better even as the LA and Bay Area markets stabilize. The population growth in these inner cities will create employment opportunities and drive up rents.

Local Regulations

Local regulations, such as zoning laws and rent control measures, can significantly impact real estate trends, often deviating from national patterns. While real estate may be performing well overall, it is challenging to achieve favorable returns in cities like Oakland and Berkeley, where local rent control laws are stricter than state regulations. As a result, multifamily property prices in these areas are not rising as much as in other regions.

Climate and natural disasters

Various factors can cause real estate prices to decline even when the national or state market is thriving. For example, Corcoran, a town in California’s Central Valley, is sinking more than usual, leading to a drop in real estate prices despite broader positive trends.

Similarly, Houston has historically seen poor property appreciation due to frequent hurricanes. Having lived in Houston for five years, I noticed a major storm every other year, making it difficult for real estate prices to rise.

This article compares Houston to the DFW area, highlighting that despite Houston’s proximity to the beach (only 40 miles from downtown), DFW consistently outperforms it. While employment opportunities play a role, I believe Houston’s susceptibility to natural disasters is a significant factor in its long-term underperformance.

Cultural and Lifestyle Factors

Local cultural amenities, school districts, and lifestyle offerings can drive demand in specific areas, sometimes defying national trends. Highly rated school districts, in particular, can make a significant difference. During market downturns, properties in these districts generally maintain higher values.

Conclusion

By understanding these local factors, multifamily syndicators can identify opportunities that might be overlooked by those focusing solely on national trends. It’s crucial for investors to conduct thorough research on specific target markets rather than relying on broad national data.

This localized approach can lead to more informed investment decisions and potentially better returns in the dynamic world of real estate syndication.

Source: Old Money Capital