It is well documented that third-grade reading levels tell us much about adult achievement. There is a direct correlation between personal income and educational attainment. Over-stating the obvious, people with a college degree make more money that those dropping out of high school.
Can we select multifamily assets to acquire based on local school achievement test? How about buying multifamily based on educational attainment of the individuals residing in submarkets? The latter offers a better correlation of future value.
Three cities in the United States with some of the lowest high school graduations rates are; Detroit, Las Vegas and Miami. Does that mean these cities are unattractive markets for investment? The answer cannot be established based exclusively on high school graduation rates. The reason being that a high percentage of people residing in these cities migrated there from somewhere else. Why? Jobs. People follow jobs.
While it’s important to factor in reading level, educational attainment and high school graduation rates in the local soup (I mean in the demographic review of a place) it is more important to identify the educational attainment of current residents.
Picking on my home state for a moment, the school districts for the two largest cities in the state are both on the verge of being “unaccredited”. This slows potential investment. A manufacturing concern will have a very high interest in the reading/writing skill levels generated from local schools. This is where they draw their workers from- for generations.
Multifamily assets are seldom viewed like manufacturing plants. A multifamily property manager is looking for tenants with the ability to pay market rents and the desire to sign a one-year lease. A manufacturer is seeking tax abatement and a place to grow roots for multiple years.
The manufacturer needs to be certain that the local populous can deliver on necessary skills to man the plant. Both businesses need people; the manufacturing business needs people that can provide a certain minimum competency, the multifamily business needs people that can afford market rents.
One significant key to determining the future value of a multifamily asset is the willingness of businesses to invest in the community. Once this dissipates there is seldom anything a multifamily owner/manager can do. Business support is much deeper than what can be seen at the retail level. Look at historic occupancy of industrial and office space. This can be an indicator of job in-flows/out-flows. Review average household income and, median income and per capita income.
Changes in investment can be identified via the local chamber of commerce, through the Bureau of Labor Statistics and various paid services providing real time changes and patterns in job growth, income growth, household formation and retail sales. It is important to review these numbers for the Metro area, surrounding submarkets and the submarket in question. Include a review of traffic counts, current and historic.
Reading levels delivered to the community by a local school district is a single touchstone in the review process of a market and its asset. But as you can see it can turn into the eye of the storm when it comes to a review of overall business investment in a place. Discount this metric at your own risk. Reading levels and educational attainment are necessary components in your review funnel of demographic analysis when performing acquisitions due diligence.
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