Start Local and Do Your Research

Ken McElroy Uncategorized Leave a Comment

post2Using other people’s money is a huge responsibility. Remember you are always going to be making mistakes and always going to be learning. Because of this, I highly recommend you 1) Start your multifamily investing locally and 2) if possible, manage it yourself. To hire a management company is to add a whole additional layer of complexity and things you need to know.

Your investors want to have the confidence that you know your market. They also want to know that you are there to deal with any potential problems that may arise. To do this effectively, you really need to be local to your property. Otherwise, by the time you hop on a plane to go deal with the problem it’s already been resolved. And chances are it was resolved in the quickest, easiest way, NOT the best way.

I like to drive by my properties. I like to swing by at night and at day. I like to pop in unannounced. Until you get a large team and a trusted team, being local is best. When I did start to grow, I first expanded into neighboring cities that I could still pop into and visit regularly. When I finally grew into another state, I actually moved there first and learned the local market. Then I expanded to other cities in driving distance.

There is one pitfall to staying local… people don’t do their research. People think that they know all about the market they live in. They probably do, from a resident’s perspective, but an investor’s perspective is quite different. When an investor looks at a market, it’s not just broken down by state, or city, but often by neighborhood and even sub-neighborhoods. Your research does not lesson by staying local, but it may be a bit easier.

How to research your local investment
There is a lot of information out there about property and a lot of ways to get that information… maybe too many ways. Knowing which resources are valuable and knowing how to access them can save you time and frustration. There’s no real trick to this at all. It’s just having fun, being open to the information that’s available about your market, knowing where to look, and committing yourself to doing it.

Research to me is nothing more than using the resources around you to gain information and insight into a particular subject. In this business that means talking to people, touring an area, taking in the sights, even within your own town.

I grouped the research I do into three easy-to-define and easily understood categories. The descriptions for each are outlined below.

Level One Research
Level One Research is what I call the very preliminary stuff. To do it, you don’t even have to leave your house. This is research you do before you even set foot on a property.

One of the first things I do is look at all the online newspapers and business journals in the city via the Internet. I follow the online hyperlinks to every interesting lead. For example, I’d type in a city like Phoenix into a search engine and up would pop a story about population growth. I’d follow it. Then as part of that story there’d be a link about school funding. I’d follow it. I’d look for anything, but especially anything that mentions limits to the supply of property in the future (that’s a good thing!) or modernization of the area, or employment predictions. This information can be found in less than a day all from your desk.

Level Two Research
Level Two Research is about meeting face-to-face. Make phone calls to set up meetings
with property managers, commercial brokers, commercial lenders, city officials, and business people like the publisher of the local apartment guide.

They will affirm the things you presumed to be true and set you straight on the assumptions that were off base. Your level one research won’t paint the perfect picture, but level two will help get your picture focused and in greater detail.

It’s during level two research that you’ll really start narrowing in on your submarket. In any economic downturn, it’s always smart to be in the market that will turn positive first. That’s true of anything in business whether it’s the stock market, a business sector, or real estate. So be sure to look at several submarkets and determine which is the strongest at this point and would be the first to rebound based on the simple economics of supply and demand, having a diversified employment base, and lack of affordable housing.

When meeting with your contacts, clearly communicate your goal—to buy a 200-plus-unit apartment community—and ask them a variety of questions like: Who their favorite property management people are, what lawyer they recommended for legal work, if they know any good accountants. Ask for recommendations for every team. By the time you are done, you’ll have a vivid picture of the market, and will have narrowed your search to a viable submarket. You’ll also have some good leads for your team, and you’ll probably be told of several properties that are possibilities.

Level Three Research
You’ll still need a bit more information to feel good about making a move there. That’s where Level Three Research comes into play. For level three, you’ll need to call every team referral and ask them all the same questions you asked of your initial contacts from level two. Get their opinions and insights, and ask them to point you in the direction of numerous Web sites, analyst newsletters, economic development offices, city government contacts, and other local businesspeople who could add the finishing touches to your picture.

Through this exercise you’ll start to discover who should be on your team. You’ll have signed up for free online newsletters, got on the mailing lists and e-mail lists of real estate agents, commercial brokers, loan officers, and other professionals helpful to you. You’ll forever be in the know and hooked into the network. No longer will you have to seek out all the information, a lot of it will now come automatically to you.

During this whole process you’ll feel like a detective following up on leads and putting the evidence together to arrive at a conclusion. And best of all, you paid nothing for the information you received during the process.

I don’t buy anything without researching the market first. Even in Phoenix, which is a market I know extremely well, I do research before I buy anything. Things change, markets and submarkets go in and out of favor, big projects like highways change the patterns and flow of a city. There is always something.

Today, thanks to the Internet, research is easy and takes virtually no time. Everything is online and easily available. Make sure you use it to make the best investment decision for your real estate properties.

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