Part 1: Why Market Selection Matters More Than the Deal
I’m often asked: What’s the first step in underwriting deals? The answer isn’t the numbers!
It’s the market—because market conditions determine your inputs (aka assumptions) for the financial analysis and cash flow projections that are ultimately used to derive the investment valuation and profitability.
A deal can look great on paper but if the property is in a bad location, it could face severe headwinds or quickly turn from hero to zero.
So, what makes a strong market? Here are the first five key factors:
- Population Growth: Look for 1%+ annual growth, and ideally outpacing the national average. More people = more housing demand.
- Job Growth: A 2%+ year-over-year or at least above the national average. Strong job growth attracts renters and ensures steady income for residents.
- Low Unemployment: at or below the national average. A high employment rate = tenants who can consistently pay rent.
- Median Household Income & Growth: Ideally $50K+ median HH income. More income = greater ability to pay rent.
- Job Diversity: Avoid “one-horse towns.” A mix of industries ensures economic stability, even in downturns.
Stay tuned for Part 2, where I cover five more market factors every investor must evaluate!
Want to take the next step?
📩 Download your free resource: The Top 10 Steps To Take When You Start Underwriting Multifamily Deals.