When it comes to real estate investment, there are many factors that should be considered before taking the leap. Investors often speak of the general economic conditions as their main impetus for investing or holding back. However, this should not be the only criteria that you work under. Demographics should also be very carefully considered. Here are three reasons to analyze demographic data before investing in real estate.
Age and Spending Habits
You might think that a younger, more vibrant population is where the money is, but you may be wrong. Consider the fact that a twenty-something is likely to have student loans, very little savings, and less experience in making sound financial decisions. Not only that but, younger people are less likely to have the funds and stable career that it takes to buy a home.
Financial newsletter writer, Harry S. Dent, Jr. has done some impressive research that reveals that human spending habits follow a predictable path. Most notably, spending on homes hits its peak between the ages of 46 and 50. Therefore, if the demographics show a population in that range, it may be a good indicator of a viable market should you be interested in flipping an investment property.
Jobs and Population Growth
According to the Bureau of Labor Statistics, the national unemployment rate was 5.8% in November of 2014. That's down from 7% for the same period in 2013. That seems like good news, but don't start celebrating just yet. The truth is, the local unemployment rate is a far better indicator of what's going on in a specific area. The unemployment rate in a given area is as important, if not more important, than the average age of the population.
Simply put, if people cannot find a good job, they are not going to be able to buy or rent a home. That also means that the population in the area is likely to decline, rather than grow. Take a good, hard look at the trends in employment in and around the area you are thinking about investing in. Dig into those numbers and look for indicators that the population and job opportunities are changing.
Rentals vs. Owner Occupied
Another important demographic that you need to take a look at is the percentage of rental homes versus those that are owner occupied. If you're most interested in buying, remodeling and flipping houses, you're going to want to look at areas where the owner occupancy is higher. Likewise, if you're looking for an income property, a predominantly rental oriented area may be best.
Although you'll get some indication of the viability of a rental or flip from that data, it doesn't tell the whole story. You also want to know what the rental occupancy rate and average rental rate are so you can determine whether or not you can recoup your investment. If you're flipping, you'll want to know the average home sales price so that you can manage your investment to make a profit when you sell.
If you're a real estate investor with questions about using demographic data, investing in properties, or you're looking for an investment partner, contact us. We're experts at helping investors find the money they need to invest in properties with promise.
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