How to Analyze a Real Estate Market in 60 Minutes – Know More than a Local Expert – Neal Bawa

The following is a summary of his talk (from a couple of years ago) and methodology.

Utah has incredible opportunities. It is in the right place at the right time. The next 10-15 years in Utah will be spectacular. (I personally agree with this, for appreciation).

1. A city you are investigating, if between 1/4 million and 1 million in population, ideally should have 20% population growth between the year 2000 and the year 2017. This is for the city itself, not the metro. Find this by putting into Google: Population ______ (city name, state). A graph will come up using data from the United States Census Bureau. (Detroit has never had growth. Provo fits the rules. Columbus, Ohio also fits the rule. Most of the midwest does not. Home prices still go up there due to inflation as the dollar goes down in value. Don’t invest in cities that lose population. If over a million, 10% growth is enough.) I tried this on Spokane. Spokane had a population of 196,454 in 2000 and 217,439 in 2017 for a growth rate of 11%. I’m guessing that growth during the pandemic years was a lot higher than normal, due to work-from-home, and now many of the recent transplants will be forced to move back.
2. In the cities that have 20% population growth, look for median household income growth of 30%+ between 2000 and 2016. Use www.city-data.com. It will show you two numbers. Calculate the percent growth. This applies to cities of all sizes. city-data.com now shows 2000 and 2019. For Spokane, the 2000 median income was 32,273 in 2000 and 52,447 in 2019 for a growth rate of 62.5% in median income.
3. Look for 40% median house or condo value growth in www.city-data.com. It will show you median household or condo value. Calculate the percentage growth. Columbus, Ohio works. Some cities steal populations from others. Orlando is stealing from everything around it because of lower hurricane risk. For Spokane, median house or condo value in 2000 was 96,100. In 2019, it was $228,500 for a growth rate of in median house or condo value for a median house or condo growth of 138%.
4. Look at the last row of the blue crime table on www.city-data.com. The most recent crime number should be under 500. Higher crime leads to delinquency. Orlando is over 500 but crime has been declining, so he makes an exception for it. For Spokane, the crime index for the most recent year shown, 2019, was 503.2, just slightly higher than 500.
5. Look at the last 12 months of job growth from https://www.deptofnumbers.com/employment/metros and sort by the last row. Midland and Odessa Texas go up and down depending on the price of oil. St. George, Utah is high on the list. Secondary cities often have higher cap rates than bigger nearby cities. Lakeland, Florida is equidistant from Tampa or Orlando. Spokane didn’t make this list.

To pick a neighborhood in a city:

1. Look at the median household income. Look in http://www.city-data.com. The darker blocks are higher income. Click on a block to get the zip code. For most of the country (excluding extremely high cost of living areas), you want a medium household income between $40,000 and $70,000 for cash flowing rentals. Higher than $70,000 will be low cap rate. If investing solely for appreciation, it can be $50,000 to $90,000. This rule works for inside the red lines, inside the city. Outside the city, one rich farmer can skew an area. Sure enough, for Spokane, the higher income areas indicated on the median household income map are on the upper South Hill.

2. Look at the median contract rent. It should be between $700 and $1000 in most of the country. This is also in city-data.com. Median gross rent in Spokane was $893 in 2019.

3. Look at unemployment rate. Compare the block in city-data.com to the city’s unemployment rate according to Google. You don’t want more than 2% higher than the city’s rates. Focus on class C areas which have better cash flow. They will have a big higher unemployment than the city. The lower South Hill Census Block Group that I clicked on has an unemployment rate of 2.41%. The St. Louis Fed’s most recent unemployment rate for Spokane County is 5%.

I personally think that while his analysis is very interesting, particularly for finding areas within a city, there needs to be more focus made on cap rate, while avoiding declining cities (declining in jobs or population). Looking at cap rate first can eliminate much of the country at present, if an investor wants a decent return considering the risk. There will certainly be long term population growth in Florida and Texas due to low taxes, warm weather, and favorable demographic trends (retiring baby boomers). Idaho, Arizona, Montana, and Utah are on the hot lists for appreciation according to Wade’s information (see link at the top of my page). Average incomes are no long as important, given current work-from-home trends and increasing retirements.