6 Market Red Flags: What to Avoid in a Real Estate Market – Episode 796

On today’s show we’re going to talk about housing markets. Specifically, if you’re considering investing in a certain real estate market, I’m going to share some big red flags that might pop up in your research.

I get asked constantly about various rental markets, but most of the time I just don’t have the data to give you a clear cut answer. I wanted this episode of Investing in Real Estate to act as a guide or checklist for you to determine whether a rental market is worth your time and investment.

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Six Red Flags:

1. High vacancy rates. This is one of the first things you need to look at when considering a market. Do you know the vacancy rate? Here’s why it’s important: when you have a tenant turnover, you want to be able to fill that spot quickly. A high vacancy rate is a big problem, stay away.
2. Crazy high appreciation. New investors sometimes make the mistake of thinking that high appreciation makes a good market – it does not! Look for slow, steady, average appreciation. See the live video I recently did on the top 10 overvalued markets & why you should never invest there.
3. Not landlord friendly. You’re going to want to look into the rules and regulations in the state and city you’re planning to invest. What does the eviction process look like? What happens with security deposits, rental licenses, rent control, tenant damages, lease agreements, etc. This is not something you want to discover after you’ve invested somewhere and you suddenly have a problem. Do your due diligence ahead of time, and if you see laws that aren’t landlord friendly, that’s a big red flag, my friend.
4. Lack of job growth / diversity. To me, a big red flag would be one big employer in a market. Because what happens in that market if that employer goes out of business? Your tenants are out of work and can’t pay rent. Look for multiple large employers: warehouses and factories, hospitals and healthcare systems, schools and universities, and more. Job diversity ensures availability and stability of tenants. Also, job growth is going to translate to low unemployment rates.
5. High crime rates. Heavy crime in a rental market is a big red flag. At the very least, you want to see a downward trend. Don’t make the mistake of investing where there’s high crime, you’ll just have headaches for years to come.
6. Lack of property management teams. Options are everything. You wouldn’t go to a car dealership that only had one car. I want you to interview a few different companies before choosing a property management company. If there are less than three companies in that market, that’s probably a red flag — not always, but again, you should have options. What’s their experience level? How long have they been in the market? DO they have a 96%+ occupancy rate? What’s their communication style and response time? How do they vet tenants? Property management is essential to your success in any market.

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