Do Not Forget Jobs

2 min read

The profitability of any investment property is totally dependent upon the tenants remaining employed at a similar level of income. No jobs = no rent for you. Even if all the tenants are employed today they could all be unemployed a year from now. The stability and viability of your target tenant pool's major employers is critical.

  • Healthcare - Evaluate the stability of the local (and metro area) population and economic demographics.
  • Check Yahoo Finance and other such sites for corporate information and for business and market investment recommendations.
  • If the metro area's economy is dependent on a few major industries (even if your tenant pool does not necessarily work in these industries) check these as well.
  • Talk to property managers and Realtors about how rental properties did during the 2008 crash and which group did best. However, general information can be very deceiving. For example, during the 2008 crash the A class properties our clients owned had almost zero change in rent or time to rent while C class properties suffered 30% or higher vacancy rates. (See, Case Study - Las Vegas and the 2008 Market Crash).
  • Check the $/SqFt trends over the last 15+ years. Falling $/SqFt prices are a symptom of ongoing economic distress or outer factors like crime, urban sprawl, etc. Whatever the cause, you are going to be hurt by it in the future. (See Investing in Declining Markets).
  • Cities with economies based on manufacturing look scary to me. See US Manufacturing: Understanding Its Past and Its Potential Future, Pew Research - AI, Robotics, and the Future of Jobs and Competition and the Decline of the Rust Belt.
  • Check the population trends. See Mapping America's Futures

What and how you will research the probable economic future of you tenant pool and the local economy depends on the specific businesses and industries.

Once you decide that your target tenant pool is likely to remain employed for the foreseeable future it is now time to compare this location to other potential locations. Remember that there are no perfect locations (or perfect properties). The tool I would use is called SWOT Analysis.Google "SWOT Analysis" and you will find many information sources. One good article I found is, "SWOT Analysis - Do It Properly!"