It is often said that in Real Estate, choosing the right location is the most important choice you’ll make, and I couldn’t agree more. We all understand that, however, it’s usually left unclear as to what exactly a “good” location looks like, as opposed to a bad location.
When we speak of location, it’s important to understand that there are three types of locations that you have to pick well:
- State
- Region
- Neighborhood
After analyzing thousands of Real Estate deals across the US in many different markets, and seeing many, many points of data and trends where Real Estate investments made the most money, I’ve come to the conclusion that when it comes to choosing the right state, region, and neighborhood to invest in, one of the the most important, if not the most important, is to focus on Population Growth.
Why Population Growth Matters When Choosing Markets:
Real Estate is almost all about Supply & Demand, and interestingly enough, even with massive amounts of demand for Real Estate, supply has been incredibly suppressed due to governmental red tape, as well as limits caused by the material & labor shortage.
When people migrate from one state to another, it creates a big surge of demand in the state with incoming residents. It’s extremely difficult for those areas with migrating new residents to quickly build enough housing units to accommodate all the new incoming residents, and as a result, housing supply drops, and demand increases as the number of new tenants and homeowners quickly surge up.
Take a look at this chart below that shows different states’ migration rates in 2021.
Interestingly enough, those states with the highest inward migration rates also tend to have the highest rental increases, highest job growth rates, highest vacancy, etc.
Every other important metric tends to perform well when Population growth is high.
To clarify, just because a state has high population growth doesn’t mean the region you’re investing in has high population growth. What I mean by that is that you have to dig deeper than just choosing a state like “Texas” or “Arizona”. You have to choose which submarkets to invest in, as well as which neighborhoods experiencing the most growth.
We pay for different data providers such as CoStar to get access to more detailed information and to go in more depth. I am a very big believer in Data and verifying things personally on the ground.
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