In Highly Fragmented Residential Markets, Commercial Movements Provide Insight.
Thanks to the overwhelming presence of technology in our lives today, real estate markets are becoming hyper-localized. I tend to blame our reliance on web-based social networks. After all, we can now poll our 500 closest friends about the relative merits of a neighborhood, a local middle school, or even the layout of a Craftsman home, and then use that wealth of input, experience, and opinion to make decisions about everything from the color of our mailbox to whether to buy the address associated with the mailbox in the first place. Forget block-to-block comparisons; never has it been truer that the real estate market varies from street to street.
Remote due diligence in its conventional form is no longer enough. That means tracking population trends, employment numbers, job opportunities, and home values is not enough. Residential investors need more information, and it must come from outside the traditional housing space. In my experience, the best secondary evaluative tool in your due diligence repertoire is commercial real estate data: specifically, retail real estate.
Here are three questions to ask yourself about retail and commercial property trends in an area before you buy residential real estate:
Question #1: What is the state of retail space in the area?
Before you buy a property to fix-and-flip or rent out long-term, take a close look at the state of retail real estate in the nearby areas. Depending on your strategy, it may make sense to avoid areas with high retail vacancies, particularly if you need to sell a property quickly at retail value or rent it as soon as possible. On the other hand, in some instances, high vacancy levels may indicate distress in the market that is creating a great opportunity for longer investing plays.
Question #2: Where are local commercial tenants moving?
If an area is experiencing a high influx of commercial tenants, then it could be set for growth. If commercial tenants are leaving, look closely to figure out why and if that reason affects your investment strategy. Take a close look at where departing companies are moving in case they might point the way toward a better investing environment.
Question #3: Does your target market like the local retailers?
Big retail companies and developers spend big money studying their target markets and moving into areas where those consumers live, work, and play. Take advantage of that big spending! If an area shows retailers who cater to your target market are moving into the area, the odds are good that the retailers have good reason to believe those consumers are heading your way as well, and that is a good sign for your investments.
Read more about Eddie Wilson’s commercial data indicators in his article on the topic on Forbes.com.