Whenever you’re buying a residential property, there are a variety of different real estate market metrics that are important to consider, analyze, and evaluate before doing so.
Each property, each market, and each location is unique, with different metrics, statistics, and numbers surrounding it. Different markets, or MSAs, have different populations, wage levels, jobs, vacancy rates, and median household incomes.
These are incredibly important real estate market metrics and provide valuable insight when it comes to evaluating a residential property’s prospects. Understanding and analyzing these factors can provide you with a comprehensive picture of what a market looks like.
The Areas Population
The population within a certain market, or geographic location, is an incredibly important metric to monitor, understand, and evaluate prior to purchasing any residential property. The population gives you insights into how many people are located there, a general idea of potential customers or renters, and a sense of how it stacks up to any competing or other local towns.
It’s also very important to understand whether the population in a particular area is growing year over year, or if it’s declining. A growing population means people are moving to the area, and there’s an influx of new people.
A declining population is a signal that people are moving away from the area, and there might be fewer renters available. It’s incredibly important to analyze because it gives you an idea of how a given market is performing, how a market’s economy is doing, and the level of competition for tenants in an area.
In markets where more and more people are moving away, it often means steeper competition for the renters or people who are in that location, which can drive down rents, due to more supply.
A Market’s Jobs
The jobs within a particular market is another incredibly important metric because it gives you insight into how the population is doing economically, and the place they’re in financially. Areas where jobs are growing, and the companies located there are performing well, is good news for the local residential real estate owners. Strong jobs, and healthy wages, means tenants can afford to spend more on their rent, meaning local landlords might be able to increase rents.
As people are able to earn more and more, it also means that they might be willing to level up or move to a higher scale location. That’s why it’s important to understand the way a property competes in a particular market if it’s considered on the higher end or lower end of the spectrum. That way, you can see where people are trending the way their jobs are going. Understanding an area’s job situation can provide valuable insight into what landlords can expect moving forward and the current state of the local economy.
The Rents In An Area
The rents in an area are another important metric to consider and evaluate before purchasing a residential property. Understanding the current rent levels in an area gives you an idea of how your prospective property competes. It shows you the property’s place within the marketplace, and the type of clientele it may serve. You’re able to see the competing properties you’re competing against for tenants and see how well it’s priced, above or below the others.
It’s also important to see how the rent levels are changing. Rent levels that are increasing, show a market that is experiencing increased demand and in a good position. Getting a sense of how the rents in a market have performed over the last 2,3,4,5 years, can give you a sense of what to expect in the future.
You can also see if there are have been steady increases over time, which you might be able to expect, or if there’s been a sharp increase, to figure out if you can expect to have more in the future. With rents on the rise, landlords might try to forecast increases in the future, and see if they might be able to raise rents at their property going forward.
The Market’s Vacancy Rate
Another important metric to monitor when purchasing a residential property is the market vacancy rate. The vacancy rate shows you the supply and demand levels within a market for that product. The vacancy rate also provides a glimpse into the number of units available, the supply, and the number of units occupied, the demand.
Vacancy rates are a great way to see how a local market is performing, whether they are underserved in a particular residential asset class, or if they are overserved. Combine that with some of the previous metrics we’ve mentioned, like rent increases, and population increases, you’re able to get a pretty nice picture of the current state of the market.
Analyzing the vacancy in a market, and also at a property, can show you how it’s performed in the past, the way it’s completed, and the way the public views it. Much of what a real estate analyst does, is to try to understand how a particular market is performing based on historical and current vacancy rates, and try to understand the way a property may perform in the future.
The Median Household Income
The median household income in an area is another important metric that gives you a sense of what people living in the area are earning or making. It also gives you a sense of the type of rent people in the area can afford as well. It’s important that at any property you’re evaluating or analyzing to purchase, that the median household income works hand in hand with the rent at the property. It’s not a good sign for the rent to be much higher than what the median household income in an area can afford, and maybe something to look at in more detail.
By understanding the median household income an area has, you can see the type of income producers living in that geographical location, and what you may expect to see from prospective tenants looking to rent in the area. Getting that insight can provide you with a framework of what people in the area can afford, the type of rent they may be willing to pay, and the type of income or rent levels a property may be able to generate.
Conclusion: Market Metrics For Investing in Residential Property
When it comes to purchasing a residential property, there are a variety of different market factors that are important to look at, which can give you a sense of what the market looks like.
- The population within a particular market gives you a glimpse into the number of potential tenants that may be interested in renting space at a property.
- The job market in a particular area can show you how people are doing financially, and the type of income increases they may be able to generate.
- Building off of that, looking at the rent levels in a particular area, can give you a sense of the type of rent increases you can expect, the way a property competes in a particular market, or the class of the building as well.
- A markets’ vacancy rate shows you the level of supply and demand in a market. The way a market’s vacancy rate has fared in recent years, the trend it’s experiencing, and the direction it’s headed in, can give you an idea of what to expect moving forward, and insight into how a market is doing.
- The median household income in a market shows you the level of income people in an area are bringing in and gives you a sense of what people can afford to pay in rent, and any room there may be to increase the rent as well.
Some of these metrics may be new to you, but these are some of the common metrics that a real estate analyst will gather and analyze when sizing up a particular residential property. These metrics provide you with valuable insight into a market and can give you a sense of what to expect moving forward.
All in all, analyzing these five metrics can provide you with incredible knowledge and information into how a market is performing, where it’s going, and the current state it’s in.