On one hand, you want to invest in real estate to build a solid portfolio and achieve financial independence. On the other, you are currently located in a market where real estate is too expensive to make the numbers work.
What do you do? The obvious and easy solution is to consider investing opportunities in out-of-state markets where prices and rents are much more balanced. But the ease quickly ends when you have to get tactical and select a good market to invest in.
This is the point where I see real estate investors make the BIG Mistake: They rely on “Best Real Estate Markets to invest in 2020” articles to select their target market. I can certainly understand the allure. The research criteria for selecting these markets seems rigorous. They are looking at population and job growth plus real estate price and rents growth. What’s more, they offer a “silver bullet” that reduces the overwhelming task of picking from a multitude of options into a few neat bullet points.
“Why is that the wrong methodology to select a real estate market”, you ask?
One major reason: All the data they’re using to select the target market is backward-facing which means that it only tells you what has already happened. It is telling you that it was great to invest in that market 5 years ago. Investing in a real estate market because of its performance in the past is like deciding to invest in Apple stock because it is up huge over the last 5 years. The blind spot investors are falling prey to is the untrue assumption that the upcoming future will be just like the recent past. And as they tell you in those stock market investment commercials: Past performance is not a guarantee of future results.
By the time a real estate market makes it on one of those lists, you are likely too late to the party. Best case scenario, you are catching the very end of the wave. Worst case scenario, you are buying at the top.
A Better Way to Select a Real Estate Market to Invest
It is always easier to point out the fault in something than to offer an alternative that actually works better. But that’s what I’d like to offer you now. Let’s dive in.
Instead of using those articles as the end of your search for a great market to invest in, use them as your starting point. If X metroplex has experienced population and job growth in the recent past, what are some of the towns in the edges, in the fringes that may have not experienced the same growth… yet.
To continue with the Apple stock analogy from before, you focus your search on the technology sector and try to figure out the next company that might grow in the future. In Wayne Gretzky’s famous words: You skate to where the puck is going, not where it is.
It’s important to understand that metroplexes are like magnets. As they grow, their “pull” on surrounding areas grows as well. So if you can figure out the path of growth, you can acquire properties ahead of it. Then, maybe 5 years later, you might see that area on the list of best markets to invest in 2025.
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What method have you used to determine the right market to invest in? Drop us a comment below – we’d love to hear from you.
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