Creating Value by Analyzing Data and Demographics

Location. Location. Location. You will know a good neighborhood when you see it, right? The challenge is, how can you predict a good neighborhood years before it is there? This past week we heard demographer Scott Stafford speak about the science which allows us to predict growth in a market (down to the neighborhood level) by analyzing demographic trends and other relevant data.

It is no secret that today’s demographic trends have played a major role in the unprecedented increases in multi-family real estate value we have seen in recent years. General trends include Millennials and Baby Boomers opting for the rental market due to lifestyle choices and financial constraints. This is one macro influence on the rental market, which directly correlates to multi-family property values. Other factors include housing supply and rental demand, which also influence occupancy trends. While this information helps determine national trends, the locality of multi-family real estate allows the same data and demographic trends to be applied on a much more local scale.

So what makes a good neighborhood? You won’t need to study market data and demographics to find a good neighborhood. Often, you “feel it” when you drive through a “good neighborhood.” It’s clean, with few vacancies, and a “vibrant” feel. Market data and demographic information helps us to find “Emerging Markets”, or on a local scale, “Emerging Neighborhoods”. Emerging neighborhoods have improving quality of living, and their housing demand outpaces supply. Investing in emerging neighborhoods is one way to select properties that will appreciate more rapidly over time than comparable properties in neighborhoods that aren’t improving.

Identifying an emerging neighborhood starts with the infrastructure of a market. Is there a diverse local economy? Has the local government identified specific business incentive or improvement zones? Are leaders such as universities and hospitals investing in the community? Transportation is also key. Are certain neighborhoods within the market more accessible than others?

After looking at the infrastructure, analyzing demographics will complete the story. Population and median income can help determine the status of the rental market. Densely populated walkable areas are typically renter friendly and median income helps determine whether the population base can afford market rent (and whether they’ll likely stay in the rental market, versus moving to condos or single family homes). Local job growth (or lack thereof) is another important factor to predict what a neighborhood will look like in the coming years. Where jobs go people go, and money follows.

While there is a lot more data available to dig deeper into the DNA of a market, a lot can be learned by looking at the infrastructure and demographics of a market. Investing in a good location is not luck! At 21 George Investors, we, analyze enormous amounts of data to identify emerging neighborhoods, and with this data we have successfully predicted good locations, before they improved. See the future? No. Predict what will happen with a high certainty…based on a analyzing lots and lots of data…YES!