How To Invest In A New Real Estate Market — A Three Step Process
Investing in a new real estate market can be a daunting proposition but hopefully, I can make the decision a little easier by sharing my Three Step Process. At the time of my writing (December 2020), the US has been under some form or lockdown/quarantine for the past 9 months. Some 300,000 Americans have lost their lives to COVID. Our daily lives have fundamentally changed and so have the markets. Every property type and geography has been impacted in some way shape or form by COVID. With that being said, there are a ton of opportunities on the horizon, being equipped with the correct tools and knowledge to execute on those opportunities will prove fundamental to any type of success in the months and years to come.
Before I dive straight into my process, I want to briefly outline the problem. As I mentioned, COVID has had a tremendous impact on real estate — rates are at all-time lows and pent up buyer demand has driven up valuations in the residential space. This has led many investors including myself to be “priced out” of our native markets in search for yield. Here in Northern New Jersey for example, one multifamily property that I own has appreciated 60% in the past 18 months, the bulk of that appreciation has come in the last 9 months as investors from New York have flocked to my home state to find opportunity. While on one hand I certainly benefit from the appreciation in my market on the other, it would be nearly impossible to find deals with similar returns and a comparable cost basis. Whether I like it out not, I have been forced to find yield outside of my backyard which is why through months of trial and error I have come up with a process to simplify buying real estate in a new market.
Step 1: Identify Your Strategy & Return Target
Before you turn your attention to a new market, define your strategy and return criteria. Are you looking for core assets? Value add? Development opportunities?
Trying to boil the ocean is the easiest way to waste your time and lose money. Develop a thesis. Once you have identified what you are looking for, your search criteria / thesis will guide your every step. It is just as important to know what you will buy as it is to know what you won’t buy. Oftentimes the latter is easy to forget in moments of distress.
Step 2: Study The Market
I cannot overstate this enough — there is no substitute for studying a market which means — getting competent with pricing, rents, vacancy rates and the overall demographics. Understand what drives a market and reduce the number of unknown variables before entering. There are plenty of tools to help size up a market — MLS Data, Employment Data and Crime Reports to name a few. All are needed to get a holistic view of a new market. If possible, take the time to tour the market in person and validate your conclusions. Google Earth is an extremely powerful tool but seeing a market in person, getting a sense for the space, the people and the overall feel of a neighborhood is critical to my investment process.
Step 3: Gather Your Team
Now that the thesis has in part been proved, go out and find the people that will be instrumental to the success of the investment — contractors, property managers, realtors and lawyers that specialize in your locale and that complement your investment thesis. As a bonus tip, I have found that the local Housing Authority can share a wealth of important information on tenant demand and rents.
Forming your team is critical and will save you both time and money in the long-run. Of course you could find some of these people ad-hoc but why put yourself in a position to potentially pay more and not receive quality service if you had the time to plan.
I have put this process to work and have had success. My hope is that you can leverage my experiences to find success for your business. In the meantime, continue to be safe!
About The Author—
Kyle Webster is Founder and CEO of Black Diamond Properties — a real estate investment group that specializes in acquiring 2–10 unit distressed properties in New Jersey. Prior to founding Black Diamond Properties, he spent four years on Wall Street in various sales and investment roles at Nasdaq and J.P. Morgan Asset Management. He is a graduate of the University of Pennsylvania.