While multi-family investing can be lucrative, it can also pose risks, if you invest in the wrong market. Some markets can be in a growth stage, while others in decline. The stage the market your investing in, is as important as the asset itself. Think Detroit, versus Austin/Phoenix. While Austin/Phoenix are clearly in growth cycles, its hard to argue that Detroit is in the same trajectory.

We buy in California, Texas, and Arizona. Before we enter any market, we look at 5 key metrics.

1. Population/Growth: It’s important to look for mid-large markets, but this isn’t a hard rule. What you are ensuring is that there is a stable base of contractors, property managers, potential renter’s. What is important is the growth factor. More people, means more people need a place to live. This will place pressure on rental rates to go up. A decreasing population means less renters, placing downward pressure on rental rates.

2. Employment/Job Growth: People follow jobs. If companies are moving to local markets this means people will follow. More employment means the surrounding areas benefit from the economic boom. The opposite holds true for markets where industry leaves. Think Detroit versus Austin. Austin is experiencing a boom from all the tech industry moving to the market, while Detroit has leveled city blocks of housing, due to lack of people. In Austin you will see rental rates increasing, while Detroit is seeing rental rate decline. It’s important to also look for a diversified industry, so not one downturn takes the whole market down. Sorry, Detroit.

3. Neighborhood/Crime Rates: Everyone prefers to live in peace. Markets with high crime rates are less desirable. Sure, there are exception to this rule. Think Los Angeles, CA. But in general, you want areas that have mid-low crime indexes. This will help attract renters to your property. Markets with high crime rates, typically will have to offer lower rental rates to compensate for the area’s higher crime rate. Higher crime rates could also mean higher unit turn over. I have seen times when residents place notices to leave because they are tired of their car being broken into. Nicer areas become amenities onto themselves.

4. School/Education: This one is very important, even if you target tenant is a younger demographic with no kids. Markets with good school districts will attract a better resident base. A higher quality resident base in the market means the area is going to attract better neighborhood offerings. Think cleaner parks, the nice grocery store, café, where people want to live and don’t mind paying more in rent.

5. Rental Affordability: I think sometimes investors forget about this metric. Investors should look at the average medium home prices in the market. If a tenant can buy a home at near the same level of what you are charging in rent, then why would they rent from you. The harder the barriers to buy a home the more a resident will continue to rent. You want to be in markets where housing affordability is a challenge, so you always have a large pool of residents.

I could write so much more, but for this blog. Each one of these can be a chapter. If you are looking at buying out of state, be sure to look at these metrics for your property. I used neighborhood scout, city-data, or census, but that’s what works for me. Talk soon!

**The above is the opinion of the author and not investing advice.