The Best Kind of Research to do Before an Investment by Ken McElroy

The Best Kind of Research to do Before an Investment

How to Set Yourself Up for a Successful New Year

I felt like this was an appropriate topic for the upcoming New Year. Everyone is starting over, right? Meaning setting new goals, looking to make some investments, whatever they may be.

And it all starts with research. No matter the location, it could be in your own backyard, you must do the research. But I can’t tell you how many times I talk to people who are investing locally and don’t do their research. People think that they know all about the market they live in. They probably do, but from a resident’s perspective. 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.

You shouldn’t stop doing research just because you’re staying local. It might be easier research, but it shouldn’t go away all together.

How to do Local Research

There are so many sources of information out there today that it’s hard to know what to use. I learned by trial and error. Taking my time to try everything. In this business that means talking to people, touring an area, taking in the sights, even within your own town. After a while, you’ll start to realize which resources are valuable. Once you’ve narrowed down some sources and know how to access them, it can save you time and frustration I grouped the research I do into three easy-to-define and easily understood categories. The descriptions for each are outlined below.

Preliminary Research

This is research that you can do in your pajamas, in the privacy of your own home. This is research you do before you even set foot on a property.

One of the first things I do is hop on the internet. I look at all the online newspapers and business journals in the city and follow the interesting leads. For example, I will type something super simple like “Phoenix” into the search engine and look at the results. One of the stories that pops up might be about the growing population of the Phoenix area. I’d read through that story and see a link for an article about school funding. Because more school funding usually means more families will move to that area. Then I’ll click on 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.

Honestly, it’s following bread crumbs. Each nugget of information can lead you to the next big realization, and on and on. And the best thing about this information is, can be found in less than a day all from the privacy of your own home.

Face-to-Face Research

This level of research requires a bit more than internet searching. This is where I start to 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. Why?

They will either confirm or deny the research you did on your own. Your preliminary research was meant to give you an idea on what’s going on in a surrounding area. But face-to-face research will help paint the bigger picture in greater detail. It’s with this research that you’ll start to have a greater understanding of your submarket.

When you’re studying the economy, 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. That’s why I recommend looking at several submarkets. It’s important to identify the strongest and weakest markets and determine which one will be the first to rebound. You can do this simply by looking at supply and demand. Is there a diversified employment base, or lack of affordable housing? Those are some good example of what to look at.

Then when you’re 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.

Team Referral Research

After your face-to-face research, you’ll still need a bit more information to feel good about making a move. That’s why you’ll need to call every team referral and ask them all the same questions you asked of your initial contacts from your face-to-face visits. Ask them to point you in the direction of numerous websites, 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 won’t only have a better understanding of the market, you’ll start to discover who should be on your team. Getting on the mailing lists and email lists of real estate agents, commercial brokers, loan officers, and other professionals will be extremely helpful to you. It’s a great way to 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 come to you through those resources.

This whole process should make you feel like a detective; following up on leads, gathering evidence to arrive at some 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 markets I know extremely well. I still do research before I buy anything. Because believe it or not, 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.

To be sure you make the best investment decision for your real estate properties, do the research!

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