JF1528: How To Perform An In-Depth Analysis Of Your Apartment Syndication Market Part 2 of 2 | Syndication School with Theo Hicks
Now that you know The 3 Immutable Laws of Real Estate Investing and have done the 5 step property analysis exercise from part one yesterday, it’s time to learn 7 new strategies to implement that will dig even deeper and give you an even better understanding of the target market, down to the street level.
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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the apartment syndication school, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, which is a free resource focused on the how-to’s of apartment syndications. As always, I am your host, Theo Hicks.
Each week we air a two-part podcast series that focuses on a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a free document or a spreadsheet for you to download. All of these free documents and past and future Syndication School series can be found at SyndicationSchool.com.
This episode is part two of a two-part series entitled “How to perform an in-depth analysis of your target apartment syndication market.” In part one you learned the three immutable laws of real estate investing and how that applies to your target market, and we also went over the five-step property analysis exercise that you performed in order to gain a more in-depth understanding of your target market on the submarket, neighborhood and street level. If you’ve not listened to part one, make sure you listen to that. You will need to listen to that before listening to this one, because I will be referencing a specific step from that five-step property analysis when discussing the extra strategies in this episode, which is part two. You will learn seven other strategies to implement in addition to the 200-property analysis exercise that will give you an even better understanding of the target market on that neighborhood/submarket/street level. Then we’re going to cumulate all of your previous efforts and data into a market summary report… So we’ll go over how to do that and why you wanna create one of those in the first place.
Let’s jump right in. We’re gonna go over seven other strategies that you can implement to have a better understanding of your market. One is to do the same exercise that we did in episode 1521, when we were analyzing our seven target markets using census.gov data. We’re gonna do the exact same thing, but rather than doing it for the city or MSA, we’ll take our one or two target markets and record data for the submarkets within that city or MSA, the neighborhoods, and/or the actual census tracts.
The reason why you wanna do this is because all of that data you gathered for the MSA and the city don’t really apply to the individual neighborhoods and streets. It’s just a blended average of all neighborhoods, all streets, all census tracts, all submarkets within that MSA, and as I’ve mentioned over and over again, no two neighborhoods are the same within a city, so you need to have a strong understanding of the actual neighborhoods or the actual submarkets or the actual streets within an actual city or MSA. One way to do that would be to gather data specific to that area.
So you go to census.gov, follow the exact same process outlined in episode 1521, but rather than searching by city, search by submarket, neighborhood, or census tract. So this is gonna be a much larger spreadsheet, but once this exercise is completed, whenever you’re coming across a deal, you can determine what submarket it’s located in, what neighborhood it’s located in, and what census tract it’s located in… And you can quickly look up all of the employment, and demographic, population etc. data on your spreadsheet. That’s one. Again, pretty labor-intensive, but if you do this, you will be a guru of your market.
Another one would be to talk to the local experts. This is kind of the opposite of number one, which is logging all of that census data… Because for that, you’re getting into the particulars. This, you’re getting a more high-level overview of what are the up-and-coming areas in the city or MSA that you’re targeting, as well as where to avoid, and who better to get that information from than people who have been actively a part of apartments for decades… So you can reach out to local apartment investors on Bigger Pockets or LinkedIn and set up a phone call or an in-person meeting with them and pick their brain on where they think the market is going, where to invest, where not to invest.
Similarly, you can attend local multifamily meetups and talk to all types of real estate professionals focused on multifamily, and again, ask them questions about what their thoughts are on the market. Also – and this will be the subject of future Syndication School series, but once you start to put together your team, you’re going to begin reaching out to property management companies and real estate brokers, and a part of that interview process, you can ask them about their expertise on the market, to 1) know where to invest and where not to invest, and then obviously you wanna follow up and do due diligence on those areas… But at the same time, you also want to screen the management companies and real estate brokers to determine how much they know. Because if they’re experienced and they’re credible, they should be able to tell you, for example, “We sold this many properties in this neighborhood recently, so this area is definitely up-and-coming, because one year ago they were selling at this much per square foot, and now they’re selling at twice as much per square foot”, for example. Or a management company could say, “Hey, we manage properties in this neighborhood, so we know it very well.” At the same time, they can also tell you where to avoid based off of their expertise.
So that’s number two – you should talk to local experts, talk to people who know about the market based off of their actual experience, not just spreadsheet knowledge, and ask them where to look at and where not to look at.
Number three, and this is my personal favorite – create a color-coded map for your target market. This is what I did for my initial target market, which was Cincinnati. What I did is I had three neighborhoods in mind within the city; I went to Google, I typed in the Pleasant Ridge, Walnut Hills and Oakley. Those were the three neighborhoods I was targeting. I printed out a map, making sure that it was a high enough resolution where I could actually streets… I didn’t need the street names,I actually needed to see the actual streets, because once I printed those out, I bought green, yellow and red highlighters, and I literally drove through every single street, and in Oakley I actually walked every single street… But in the other two we drove every single street up and down, and once we got to the end of a block, we stopped the car, and luckily, I was with someone else, so I don’t think I actually stopped the car, or do it while I was driving – so this is ideal, it’ll save you a lot of time if you do this with someone else… But for each street, highlight that street with a green, yellow or red, and these are going to be subjective rankings based off of your investment strategy… Essentially, streets where you would invest and streets that do align with your investment strategy would be green, ones that are on the cusp, they’re a maybe, they’re not ideal, but if a deal did come up on that street, you would take a look at it – you’re gonna highlight these with yellow. And the ones that you wanna avoid – the war zones, or the ones that are really, really nice, depending on your investment strategy, you can highlight those as red.
At that point, in my opinion, this is probably the best way to get an understanding of the market – to drive every single inch of that market. Yeah, it’ll take time, but I did a neighborhood in a day, so… On Saturday I did a neighborhood, on Sunday I did another neighborhood, and on Monday I did another neighborhood. It cost a lot of gas money, but at the end of those three days I knew so much about those markets that now whenever a deal comes up, I just look at my map and say “Nope, I’m not even gonna analyze that property, because I know that that area sucks.” Or “Oh, this is an amazing area. I need to underwrite this property and likely submit an offer on that property.”
So number three is to create a color-coded map, and again, this one takes a lot of time, but it’s my personal favorite.
Number four is to visit properties in person that are managed by your property management company. On this Syndication School series we have not gone over how to find a property management company, but we will in the future, and if you are dying to know now, you can go to our blog, which is thebesteverblog.com, or you can just search “How to find a property management company joe fairless” and you’ll be able to locate the blog post we have on how to find a property management company.
Once you have them, you can ask them to send you a list of properties they currently manage. Some of them will say “Okay” and send them to you right away, other ones will have to get approval from the owners first, and they’ll wanna set up a tour… So it just depends on the manager, but eventually, once you get your hands on those addresses, visit them in person and follow step five from the 200-property analysis exercise that we went over in part one, which was the episode just previous to this one. So go to the property, take pictures, and also drive around the area.
Of course, this is going to give you an understanding of the actual neighborhoods that these properties are located in. Also, killing two birds with one stone, it’ll also give you extra credibility with your property management company, because you’re proactively showing effort, you’re actually going out and visiting these properties, so it shows an extra level of seriousness, and it also gives you an opportunity to actually screen your management companies. So you can go look at these properties to see how they’re managed, and if every single property you look at is in terrible shape, then you might consider passing on that management company, or at the very least following up and asking them why those properties are in such poor condition. So that’s going to be number four – visit properties that are managed by your management company.
Number five is going to be underwriting deals. Again, on Syndication School we have not gone over how to underwrite deals yet, but there is a massive section in our book – Best Ever Apartment Syndication Book – that focuses on how to underwrite a deal from start to finish. So if you’re dying to know, then you can pick up that book on Amazon, or you can wait for a future Syndication School episode where we take a deep dive into underwriting. But underwriting is when you financially analyze a deal to determine an offer price, and then based off of that offer price, you’re gonna determine whether or not to actually submit an offer, based off of the whisper price of the property.
But you can learn a lot about a market by underwriting deals. Number one, you will learn about the types of expenses that are common in that specific neighborhood, and then you can also read through the offering memorandums and look at all of the market data they have in there… But most importantly, you can visit the property in person, as well as the rental comps. That will give you at least five to ten properties to visit. Again, when you’re visiting these properties, make sure you follow the same approach that we did in step five of the 200-property analysis exercise. And again, similar to visiting the properties from your management company, this is killing two birds with one stone, because you’re going to build credibility with the listing brokers, because they know you’re actively underwriting the deals and visiting them in person, so again, an extra level of seriousness.
Then you can also tell the broker what you do and don’t like about that property. What I mean by do and don’t like is how does this property compare to your business plan. If your business plan is value-add, then you can tell the broker “Hey, this property was value-add because of A, B, C, D”, and maybe even submit an offer on that property, or if it’s not a value-add property, you can say, “Well, this doesn’t align with my business plan because of A, B, C, D.” That not only lets them know what types of properties you’re looking for, but it also gives you an extra level of credibility because of your proactive effort.
Similarly, you can also ask the real estate broker for a list of their recent sales, and visit those in person, again, using step five from the 200-property analysis exercise. You’re driving through these properties, as well as the markets. And again, killing two birds with one stone, this also builds credibility with the broker, because you can also tell them what you do and don’t like about the properties as it relates to your business plan, and you can’t submit offers on their recent sales, but maybe it’s something you can keep a note for for a few years down the road if that person decides to sell the property, and it comes up, you know that you already visited it in person, it’s pre-qualified, or eliminate the deal from contention. That’s number six.
And then lastly, number seven is you can create an automated e-mail alert system to learn about your market. First, you can create a Google alert for the market. What you wanna do is go to Google and go to the Google Alerts, and set up an alert to your e-mail for “city name + jobs”, “city name + unemployment”, “city name + apartments”, “city name + multifamily”, and anything else that you can think of. Eventually, when you become very famous, you can do “city name + your name”, so I’d do “Tampa Florida Theo Hicks.” That way, any news article that mentions the city name and jobs, unemployment, apartments, multifamily or you will be automatically sent to your e-mail. So you don’t have to actively search for them, they’ll automatically be sent to you. So you can set up what time you want those to be sent, so each day you can block off an hour or two to read through all of those articles.
As you begin to read the articles that are sent to you from Google Alerts, it will also lead you to great local online resources that you can in turn sign up for their newsletters to get even more e-mail alerts. For example, you should definitely subscribe to your local biz career website, and then any other local news sites that are relevant, you should also sign up for their newsletter. Because really, anything newsworthy has some sort of impact on real estate.
So those are the seven additional strategies… I’ll quickly go over them again:
1) Perform the census.gov exercise that we performed in episode 1521, but rather than do it on a city level or an MSA level, do it on a submarket, neighborhood or census tract level.
2) Talk to local experts. Talk to local apartment investors, go to local meetups, talk to property management companies and real estate brokers and ask them what the up and coming areas are, as well as what areas to avoid.
3) My personal favorite – create that color-coded map of your area with green, yellow and red, based off of whether that area aligns with your business plan.
4) Visit properties in person that are managed by your management company.
5) Actually underwrite deals and read through the offering memorandums and visit the property and the rental comps in person.
6) Visit the recent sales of your real estate broker.
7) Create the automated e-mail alert system using Google Alerts, and then expanding from there.
I guarantee you if you just follow a handful of those strategies, you will be a guru on your market. And if you do all seven of those, then you’re gonna be a super-guru, or whatever is a level above being a guru.
Now that you’ve done all this research on a city-level, on a MSA-level, on a submarket, neighborhood and street-level, now it’s time to summarize all this data into your market summary reports. So we’re going to give you two free documents with this episode, and they’re going to be two sample summary reports based off of the two types of market summaries that you can create, which I will go over here in a second.
Again, a market summary report will be a synopsis of the major highlights of your target market, and the purpose of the market summary report is to 1) reinforce your reasons for selecting this target market, and 2) to display expertise when speaking with real estate brokers, property managers, mortgage brokers and other real estate professionals… Because a question that all those people are gonna ask you is “Where are you investing?” and not only can you tell them where you’re investing, but you can tell them why you are investing there. And again, that display of expertise will build extra credibility for you in their eyes.
Then 3) you are going to be able to proactively provide this information to your investors. Before you find a deal, you can send out your market summary report, just letting your investors know “This is where we’re investing, and now we’re looking for deals in this area.” Then once you actually have a deal under contract, you can take the same summary reports and customize it to that specific property, and I’ll explain how to do that once I actually go over the reports, which I’m gonna do now.
The two types of reports that you can make are 1) a top 10/top 20/top 5 (however many points you wanna have) list that lists the top reasons to invest in your market. Then the second one is going to be a detailed market overview, which is going to be a 6-part report on breaking down all aspects of the market.
First is your top 10 list, and to create this report, you can use the market insights that you’ve obtained from your previous evaluation efforts, as well as perform some additional online research. The types of things you wanna have on your top 10 list would be employment information, so any new businesses moving to the area, you can put in the percentage of jobs that are in the largest industry, as long as it’s 25% or lower; you can put in any recent or planned economic developments, you can talk about the top employers/companies in that market, any Fortune 500 companies… Anything as it relates to the employment and job data of the market.
You also wanna talk about population, so you can talk about the overall population size, and the growth, and how that compares with other cities and MSA’s in the nation. Also, population age is another factor we focused on, so any significant demographic trends – if a lot of millennials are moving into the area, a lot of retirees… Also, you wanna talk about supply and demand, so any recent or planned apartment developments (supply), any information about rental growth information (demand), and then just the overall economic outlook, to essentially answer the question “Is the future of multifamily in this market good or bad?” and since it’s your target market, it should be good.
And then other things we talk about are top colleges or universities in the market, if the market is ranked on a top market list, if it’s received any awards or acknowledgments, we can talk about community characteristics, any notable school districts… Really, anything that you can think of that reinforces the strength and reasons behind selecting this target market. So essentially, what you wanna do is create a list of anything you can think of using the market insights from your previous efforts, additional online research and those points I’ve just mentioned, and then condense that into a top ten list. For an example, you can download the Free Top 10 list – and it’s actually for Baltimore – at SyndicationSchool.com, or in the show notes of this episode.
Now, the second type of market summary report you can create is a lot more detailed, it’s not necessary, but this is a report that we created for one of Joe’s very large investors, who wanted to be the sole investor on a deal. When we sent him this report, he was blown away by the level of detail. In total, this person has invested around 20 million dollars, and that is at least in part due to this detailed market overview summary. So I’d highly recommend downloading this one, and also creating this for your specific market. This is something that you can create one time, and then customize it whenever you have a deal, and I’ll explain how to do that when I go over the different sections of the report, which there are six.
The first section is going to be a Top 5 Key Assets section. As the name implies, you wanna list out the top five highlights of the market. You can use your top 10 list, or other sections that we’re gonna go over in a little bit, as a guide to creating this top 5 list. And if you have a specific deal, these top five key assets should be relevant to the actual property.
For example, if there is a new development of an office building that is in that market and it’s very close to your subject property that you’re trying to purchase, that should be in that top five list… Whereas if the property is nowhere near that development, it should be included in the information later on, but not highlighted at the top.
Section two focuses on employment information. Here you want a summary of the employment data. Things you want to include will be number of jobs compared to other surrounding submarkets, a list of the top industries and companies, the labor demographics (unemployment), employment data, and anything else that relates to employment, jobs in the area.
The third section is gonna contain economic information. Here you wanna highlight any recent or planned economic or real estate growth – either companies moving to the area, any new jobs that are created, retail, commercial, mixed use development, planned or recent, as well as the real estate price and rent trends.
Number four is education information, so highlight the education data that is specifically relevant to apartment investing and your investment strategy. For example, if you’re targeting students or recent graduates, you can give information on the types of colleges and universities in the area and their respective rankings. You can talk about the student population and the recent graduate population. If you, for example, are targeting families, then you wanna talk about the notable school districts in the area, and if for example you’re targeting young professionals, you also wanna talk about the educational attainment of the local demographic.
Number five is going to focus on awards, recognitions and achievements of the market. List out any awards won by the city, the market, a neighborhood, any local business or industry… And then lastly – and this is more for once you actually have a deal; this is a very strong resource when you have a deal, but you can still create it without a deal, and that is to create a map of the market that includes little markets to illustrate points of interest that you mentioned in the sections above – the top employers, the schools, and once you actually build a portfolio, you can reference other apartments you own… Job hubs, retail… Anything mentioned above that [unintelligible [00:28:36].09] you want to add that to your map, and then once you actually have a deal, then you can add that property address to the map and then your legend for each of the points of interest you can have a distance from the subject property included in there.
An online resource that allows you to do what I’ve just mentioned is called ZeeMaps. You can go there and type in addresses, and then label the name of that address, and then a little dot will come up on the map with either the name next to it, or the name in the legend.
Again, there are samples for the top 10 list and for the detailed market overview that you can download for free at ApartmentSyndication.com or in the show notes. The reason why (just to reiterate) you wanna create these summaries is to reinforce your reasons for selecting this target market, to display expertise when you’re talking with real estate brokers, property managers and other real estate professionals in the apartment industry, and also you want to be able to proactively provide this information to your investors before and after finding a deal. And you’ve done all this work, the three podcast episodes that are half an hour each worth of work, this is kind of your final presentation, that is an accumulation of all the effort and all the work that you’ve put in so far. It summarizes everything you learned, and this is gonna be your go-to document that you provide to others, as well as reference when you have a new deal.
This concludes part two, where you learned seven additional strategies to implement, in addition to the 200-property analysis that we went over in the last episode, in order to gain an in-depth neighborhood-level understanding of your target market. Then we discussed how to create a market summary report — actually, two reports… The top 10 list and the detailed market overview, which you can download examples of for free at SyndicationSchool.com
Also, make sure you listen to part one, as well as all of the previous Syndication School Series about the how-to’s of apartment syndications, as well as to download the free documents with this episode, as well as all past free documents. You can do all that at SyndicationSchool.com.
Thank you for listening, and I will talk to you next week.