Market research is one of the most important aspects of success in real estate.
Owning real estate in a healthy, growing market will make a lot of things easier. Owning real estate in a dying, sluggish market will make a lot of things harder.
Most people understand this, but not everyone knows how to measure and quantify actual market data and make data-driven decisions about which markets to invest in.
At the beginning of 2019, I moved my land business from operating in Indiana to Florida and I found that Florida was a much better experience all-around. At the time, however, I couldn’t figure out exactly why.
What Makes a Good Market?
When it comes to selecting a market for the land business, a common notion is to find a county with a population density of less than 100 people per square mile (give or take) that is within 1-2 hours of a major metropolitan area.
Doing this in Indiana definitely made me money, but the sales weren’t consistent enough and I often found myself feeling frustrated and stuck.
I couldn’t figure out how to scale my business; sales were simply unpredictable and I could build a system around them.
The minute I started doing business in Florida, however, it was a totally different experience!
After ironing out the kinks of being in a new market, I’ve sold properties on a monthly basis ever since.
The big question is why,
Why did I have so many more consistent sales in Florida compared to Indiana?
This question caused Seth and I to embark on a six-month-long research project that ultimately led to some very enlightening findings… and we came up with a very simple method of determining what markets would be optimal for the land business. That's what we're going to cover in today’s article.
How to Quantify “Desirability”
When we're researching a new market, our goal is to find out which markets are desirable.
But “desirability” is a very subjective thing (you might find some markets more desirable than me), so the objective is not to quantify desirability based on what you or I think, but what our target customers think.
At a gut level, Seth and I knew Florida would probably be more desirable than Indiana… but it’s not enough to have a “gut feeling”. We needed a systematic, repeatable process we could work through in every new market, so we could know objectively which markets would be most sought after as a whole.
Now, Florida beaches and year-round warm weather might be an obvious indicator that it’s a more desirable place compared to the cornfields and harsh winters of Indiana, but what if you were comparing Indiana to say Michigan or Ohio?
All three of these states share many of the same attributes, so which one would be more optimal for the land business (or any real estate investment, for that matter)?
And what if, for some reason, you HAD to buy properties only in Indiana? Could you figure out a systematic way to find the most optimal area within a sub-optimal state?
The answer is an emphatic “YES!” and there are key pieces of information you can use to consistently predict where people want to buy real estate.
3 Factors Of A Good Market
There are three major indicators to use when determining a good market:
- Job Growth
- Population Growth
- Crime Rate
Job Growth might be the most important indicator of a strong market. If companies are growing, then most likely people will be moving there for work and with an increase in population, there will usually be an increase in demand for property.
Now, there are a couple of things to consider when looking at Job Growth.
First is employer diversification. If only one or two employers are the source for all the jobs in an area, then that's a big potential risk to consider.
If one or two of these companies shut down or move away, the local community could experience a harsh economic downturn. People will inevitably move away to find employment elsewhere and the demand for real estate could decrease relatively quickly.
The second is that some jobs that are more transient in nature (like the oil fields, for example), might be misleading in their Job Growth metrics. These jobs may exist today, but they almost certainly won't stick around for the long term. An increase in employment in an oil town doesn’t necessarily mean people are moving there or want to buy property.
So be aware that Job Growth, as well as with all of the other metrics mentioned here, needs to be seen with the big picture in mind… not just as an isolated number.
As I mentioned earlier, when a lot of people move to a certain area, there will inevitably be an increase in demand for real estate there.
If a market sees an increase in population over a long period of time, say 5, 10 or even 20 years, this is a strong indicator that real estate in this particular area is in high demand.
Something to keep in mind is that an increase in population doesn’t always mean the people who are moving to the area are buying property.
For example, a growing population in a college town may just indicate that the student population of the town’s university is growing. This doesn’t mean people are moving there to stay long term, or to buy real estate.
If the Crime Rate is high in an area this could be a major deterrent for people wanting to own property in the area.
That said, something to consider is that if an area has low unemployment and a growing population but the crime rate is high, this might indicate that the area is in going through gentrification and the cost for buying property might be inexpensive compared to the demand in place.
Either way, the crime rate of an area is a significant factor you'll want to consider when determining the overall health of a market.
One thing worth noting before we move on is that normally with a higher job and population growth, the cost of real estate will typically be higher as well.
There are exceptions to this rule (and when you find them, you'll probably want to do a lot of business in that market) but it’s worth mentioning that as you do your market research, you should factor in how much money you have to buy inventory and assess if the demand for the market is worth the cost of doing business there.
3 State-Level Factors Of A Good Market
If I were to provide a list of minor factors (things that are worth considering but aren’t anywhere near as important as the ones mentioned above), I’d include the following:
- How are real estate closings handled in this state?
- What documents are needed and how to the laws work for seller financing?
- What do the property taxes and business laws look like (is it pro-business or anti-business)?
How Does This State Handle Closings?
In the land business, it's important to understand whether or not an attorney is required to facilitate real estate closings.
In States where an attorney isn’t required, it opens up the possibility to close on your own, which again, comes in handy when selling on terms.
Seth (THANKFULLY!!) created an incredible blog post with an interactive map that can help you figure some of this out.
What Documents and Laws Are Involved in Seller Financing?
If you plan to sell properties with seller financing in your land business, then it's important to understand what documentation is required and what you'll have to navigate through when (not if) you need to repossess a property.
Some states can require a different set of documents and a different recording process when it comes to selling a property on terms.
So learning what the process is in your market is worth exploring.
Most states will use either a Land Contract (aka – Contract for Deed) or a Deed of Trust, and they are two very different documents. Using the wrong one could make it very difficult to repossess your property in some states… so before you sell 50 properties with seller financing, you'll want to make sure you're actually using the right documentation and you understand how the rules work in your state.
Seth explains the issue in this video…
What Do The Property Taxes and Business Laws Look Like?
There can be a lot of little wrinkles that come up when working in a new state. Most of the time, there aren't any deal-breakers or problems that can't be overcome, but even so, it's good to get a baseline education about any unique attributes of the state you're thinking about working in.
- What do the property taxes and business laws look like for your particular market?
- How do they foreclose in your state?
- Are the laws favorable for business owners?
- Is there anything unusual or unique you need to know about that would help or hinder your business?
- Are there any other required supporting documentation to record a deed successfully?
- Is your market in a non-disclosure state, limiting the available comparables?
These factors will be unique to your market, but they’re important to be aware of so you can avoid hitting some roadblocks that hinder the success of your business.
The Other Factor: Tourism
One final thing to think through is whether or not Tourism is a leading industry within your market.
Seth and I both recognized a pattern: Most of the states that ranked highest for Tourism also happened to be popular markets for the land business.
This isn’t a perfect approach because there are plenty of markets where land investors thrive that don’t rank high for tourism, but the correlation was strong enough that it’s still worth mentioning.
If a market doesn’t have strong job growth or population growth but it’s a place where a lot of people like to go on vacation, then the demand for property may still be high enough to warrant a closer look at that market.
Alternatively, if an area ranks high for Tourism and has a strong Job and Population Growth, then demand for property in the area will be that much more.
Where To Find The Data
Now that you know what factors to consider, where can you actually find this information?
There are a number of different websites that provide information on Job Growth, Population Growth, Crime Rates and a number of other helpful resources, but my favorite is called BestPlaces.net.
This is basically a one-stop shop for market research!
Before discovering it, I had to navigate through several different websites (and most of them were NOT user-friendly).
Here is a tutorial that goes over exactly how to use BestPlaces.net for market research as a land investor:
If for some reason BestPlaces.net doesn’t work for you, here are some other websites I’ve found extremely helpful for market research:
- Job Growth and Unemployment Rate
- Population Growth
- Crime Rate
- How Do They Close In This State?
- What Documents Are Needed For Seller Financing?
Shout-Out To Sean Callahan
I also want to give a special shout-out and thank you to Sean Callahan. Sean participated in our coaching program last year and was instrumental in helping me figure out what to look for but also how to find the information for this kind of market research. Thanks, Sean!