Since the turn of the century the U.S. population has grown almost ten percentage points. That’s a lot of heads in beds! Recognizing a full one third of the population rents, how do we find these new customers for multifamily property owners? Where are all these new people? Let’s find some clues in pattern recognition.
In this post we are excluding high-tech or big dollar data sources (like thematic mapping). We will discuss easy-to-find data points that provide guidance about demographics. This discussion relates directly to the acquisition of multifamily property and methods for gaining information about an acquisition candidate.
Consider this a due diligence starter kit for gathering market intelligence. Demographic data can tell us much about an area as we create layers of information related to a specific address- a specific acquisition target.
The following information sources are all public. There is little or nominal costs to obtaining information from these sources.
“Big, Easy Patterns”
Following are data sources that provide a “sense of place”. Of course, for a place you’ve never heard of (or seen) this data alone is not sufficient for making investment decisions. However, these information layers will significantly enhance your location specific knowledge- including for places you think you know well.
#1. Census Data
The volume of information provided by United States Census Bureau can easily create that dear-in-the-headlights feeling. Start with the home page and go to American Community Survey.
Go to: http://www.census.gov/acs/www/. This will provide “snapshot” data on any community without having to dive into the entire website. The Survey provides a starting point for obtaining demographic data for a certain place.
#2. Traffic patterns
The State DOT (Department of Transportation) can tell you where the traffic is… car traffic.
Metairie Louisiana is a place I lived for a year. Pre-Katrina (2005) Metairie was poised for growth. Significant retail development was underway and road construction was rolling including an expansion of interstates. I mean, they were loaded for bear.
So let’s say we were to review the population data for New Orleans today, pre and post Katrina. The data will likely reflect some differentials (particularly at the census block group level). My guess is auto traffic has dropped off a cliff. Why is this important? Because tracing traffic volume and traffic patterns allows us to draw some conclusions and make predictions about future occurrences of growth based on this information.
When assessing a multifamily acquisition target, if the car count has dropped in recent years from, let’s say, 9,000 cars a day to 3,000 cars per day; there is a reason. The “why” is the question. Large retail chains thrive on this data. Wall Street wants to know year-over-year “same store sales”. Sales are based on traffic… foot traffic and car traffic. In this respect, there is a correlation between retail and multifamily.
#3. Building Permits
City/County Planning & Zoning. P&Z knows where builders are going to build…. even before builders do. They track not only all the paper related to building, but also utilities construction.
When a builder pulls a permit to build they are committing real dollars to development and likely have already made an investment in excavation, Architectural and Engineering. They have also confirmed availability of water and electrical service. A builder pulling a permit intends to build.
Within a Census Tract, an over-lay of permits pulled and population growth can point an investor toward knowledge of construction trends and anticipated growth. No reason to buy in an area where builders have gone wild at the same time the population is shrinking. Stay away. Stay far away.
#4. Chamber of Commerce
The local Chamber has their hand on the pulse of the business community. It is there job to promote the community to the outside world. They know where development is occurring and who is shipping jobs into and out of the community.
Earlier this decade, in a very short period of time, there was a flood of apartment developments up for sale in Hazelwood, MO. A little digging found that the Ford Motor plant in that community was closing and with it thousands of jobs were leaving the area. Always check with the Chamber to see whose coming and whose going.
#5. FBI statistics
While this information can be daunting, it is important. It’s also public information. For an area, focus on patterns of crime against people and property. What is the direction of the trend?
New York City in the 1980’s had terrible crime. Yes, there is still crime there today, but not nearly to the extent as years ago. This single fact has enhanced not only the standard of living in the city, but has had a positive impact on property values.
Look at violent crime and rape. It’s difficult to think about much less want to study. But wouldn’t you prefer to know the trends prior to making a buying decision rather than after the fact?
Bonus! Here’s the Best One
The Street Cop. These hard-working folks are your best source of on-the-ground information. They are honest reporters. Walk into the local precinct or Police station and ask to speak with the street cops that cover the area you have an interest in.
If the officers are not available or too busy… come back later or make an appointment (remember: their shift and workload is not based your availability). The Police Officer’s patrolling the very streets you have an interest in buying multifamily units know these streets. Do not discount this.
Scratching the Surface
The preceding is a beginners birds-eye view to a place. Professional demographic analysis is very expensive.
The methods presented here are not a substitute for professional reporting and market studies. The larger the investment, the more necessary professional market surveys become.
The preceding is not a substitute for a quality market study or in-depth due diligence. This post represents a starting point for accomplishing baseline demographic analysis.
Multifamily acquisitions is as much art as science. Yes, we have our hard numbers and stacks of financials. Yet at the end of the day we need people. People to rent, people to manage.
The financial data alone is a single slice of the picture representing the value of an asset. The greater determinant of real value is in understanding current and future utilization… and by whom. The “whom” is identified by Demographic and Market Analysis!
Mr. Wilhoit is the author of three books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 & 2 – How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets. Multifamily Insight Vol 2 — just out!
About This Blog:
Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. See http://multifamilyinsight.com.