Sometimes, we make the mistake of zooming out too much when it comes to real estate. We focus so much on national and global real estate trends that we miss the reality of where we – and our rental properties – are. There’s a mantra you may have heard from time to time:

All real estate is local.

This means local factors and conditions highly influence real estate markets rather than national or global trends alone. Success in real estate investing requires understanding the specific characteristics and dynamics of the local market where you’re investing.

Here’s what it means in practical terms:

7 Ways Local Matters Most in Real Estate

#1 – Local Supply and Demand

The balance of housing supply and buyer/renter demand can vary dramatically between cities, neighborhoods…even across streets! It’s not enough to know that a particular market has high demand. You need to know what that demand is localized.

Factors like job growth, population trends, amenities, development plans, school districts, and zoning regulations impact local demand.

#2 – Neighborhood Dynamics

Within the same city, neighborhoods may differ in property values, rental income potential, and appreciation rates. Proximity to amenities like schools, parks, public transportation, and shopping centers is crucial to a property’s appeal and value. Sometimes, it’s about the age of the neighborhood, the HOA regulations, or the overall curb appeal. This is why having eyes on the ground is so important. Rarely can an out-of-state investor accurately get a feel for a neighborhood. That’s partly why leveraging the first-hand experience of turnkey partners and property managers is so important!

#3 – Local Economic Conditions

The strength of the local job market, key industries, and major employers are critical in determining demand for housing. A city with diverse and growing industries is less vulnerable to economic downturns than one reliant on a single sector. We’ll use our favorite example again: Houston. In the 1980s, Houston experienced a devastating market crash when the oil industry tanked. In the decades since, Houston learned the value of economic diversification. That diversification made Houston one of the strongest post-Great Recession markets and is why it continues to thrive today.

#4 – Market Cycles Differ

Real estate markets in different regions operate on unique cycles. While one market may be experiencing rapid appreciation, another may be stable or declining. Because of this, local cycles may not align with national averages or reported trends. Real estate investors can almost always find an advantageous market in the “right” stage.

Further Reading: Find Success in Every Stage of the Real Estate Cycle

#5 – Regulatory Environment

Local zoning laws, rent control policies, tax rates, and landlord-tenant laws can significantly affect your profitability and investment strategy. Simply put, some places are investor-friendly, whereas others are cold. Be aware of what’s going on where you invest.

#6 – Property Type Preferences

Single-family homes may dominate in some markets, while multi-family properties or condos might be more common in others. You need to know the breakdown in your investment markets because supply and demand are directly affected.

Local preferences for housing style and amenities also vary. For instance, suburban markets might prioritize larger yards, while urban renters may prioritize walkability, public transportation, and townhouses/apartments. Cultural preferences, lifestyle trends, and population demographics also influence demand for specific housing. College towns focus on student rentals, and retirement hotspots favor single-story properties and senior living communities.

#7 – Competition Levels

The level of competition for properties often depends on the market’s size, investor activity, and the availability of affordable housing. A small town may have fewer investors vying for deals, whereas a hot metro market may be saturated with competition. Ideally, investors strike a balance between the two extremes.

Implications for Investors

Research is Key – Know your target market intimately before investing. Study local data on rental yields, appreciation rates, and demand trends. Out-of-state investors, do not skip this task!

Network Locally – Connect with local agents, property managers, turnkey companies, and investors who understand market nuances. They can give you insights you can’t glean from data alone.

Avoid National Assumptions – Don’t apply national trends or averages to your local market. For example, while a national headline might say “housing market cooling,” your specific market could be heating up. Don’t let national trends sway your strategies until you’ve done your local homework!

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