When you’re a passive real estate investor, you have to reframe how you think about the real estate market. Other investors and even homebuyers all have a different approach to why they buy properties when and where.
Passive real estate investors have to take a unique approach when selecting their real estate markets if they hope to achieve long-term financial success.
There are certain factors you have to look for in your real estate market and certain things to consider for the health of your portfolio in the long-term.
These are just a few things you’ll want to consider as a buy-and-hold investor.
4 Market Factors to Consider as a Passive Real Estate Investor
Market fluctuations over time.
For buy-and-hold real estate investors, one of your biggest priorities should be market stability. Unlike flippers or other investors who may be looking to turn a quick profit on their property, you’re trying to look for something that will earn you steady passive income over the long term. Ideally, this also comes coupled with appreciation over time, but this is not your primary concern.
As a result, a passive real estate investor will want to look closely at the history of a market to determine its overall performance and stability through the years and especially through times of economic hardship. Observe how the market has performed through recessions and how it recovered. Look to see how it handles both stress and flourish.
Both the ebb and flow are important. Not only can it help you know what to expect, but zeroing in on a stable market will give you less to stress over.
Job market growth and diversity.
Often overlooked is the importance of the job market in real estate investment. They are intrinsically linked and one of the single most important factors in assessing the health of a real estate market. For investors, look to a job market to gauge the health of the real estate market. Are there growing job opportunities? Are employers moving in or are they leaving? Are there multiple industries in the market, or does the economy rely on one or two big players?
These are all questions to ask. It’s not wise, for example, to invest in real estate in a town that may only have one steel plant as its major employer. Should that plant shut down, much of the market’s employment opportunity goes with it, and you’d likely see a population decline, a decline in rental demand and rent prices, and difficulty filling vacancies. It creates a domino effect that you'll want to avoid!
A diverse and growing job market is always ideal.
Movement in the real estate market.
Another indicator to look for is simply whether or not there’s demand in the real estate market. Are homes selling? Are new properties being put on the market? While a passive real estate investor may not want to target a “hot” market that operates at a breakneck pace, you do want one that has a healthy month’s supply.
You also want to ensure that things are actually moving. A lack of demand may be pointing to larger problems in your market, such as a lack of population growth, which is something you need to sustain renters.
Renter demographics and potential.
Something else worth considering is the makeup of your market’s individual renter demographics. Each market will have individual subsets of renters who will be looking for different things. For example, a market with a university will attract a lot of student renters and have a high demand for student housing. A market with a strong economic base will likely attract young families and professionals who move for career opportunities. Other markets may present strong rental opportunities for retirees and vacation homes.
These are unique rental niches that you must be aware of as you research individuals markets. They will impact which properties will best suit your portfolio and how you can best protect your assets.
As a passive real estate investor, the markets you want to target, ultimately, are the markets that will populate your portfolio with investment properties that will provide you with steady cash flow and appreciation over time. You want investments that you can count on. Once you have investments that are the solid foundation of your portfolio, you can build on and branch out in other ways—but these buy-and-hold properties must be stable because they are foundational.
Thankfully, you don’t have to worry about navigating and interpreting market data all on your own. With the help of a turnkey company like Memphis Invest, you rest easy knowing that great markets for turnkey investors have already been thoroughly researched by our experts. Our investors are already reaping the benefits and so can you!