Deciding where to buy a commercial investment property is one of the first questions posed by income property investors. However, although “location is everything” is a well-touted saying before you consider where you want to buy, you need to take into account the timing.
That’s because while location can make a difference, there is a significant amount of profit to be made – or lost – depending on when income property investors decide to sell or buy a property.
Three Types of Income Property Investors
There are three different types of income property investors, and each one takes advantage of a different aspect of the market.
The Deal Finder
The most common type of investor looks for deals when the market is at its lowest point, but showing signs of going up again.
This can be a great strategy if you’re ready to buy or sell at a moment’s notice. The problem with this method is that most income property investors will be trying to do the same thing, which makes for a crowded market. It also means that he takes a risk of waiting too long in order to take advantage of the upswing, in which case he might find the market has already started shifting downward.
The Bottom Feeder
The second type of income property investors does just the opposite. They buy when everyone is selling. By trying to acquire a property at its’ lowest price, they are taking advantage of the belief that the market is at its’ lowest, and are merely waiting for a couple of months that it takes for the market to rise again.
This is also a tricky method since if the investor fails to identify the market at the lowest point, he will be stuck waiting it out with a non-performing property.
The Trend Finder
The third type of income property investors looks for market trends, choosing to buy or sell a property based on a national or local demographic trend. For example, the Census Bureau has reported that by 2030, one out of every five Americans will be over the age of 65. This type of investor looks at the data and combines it with other events – such as ObamaCare- and realizes that there will be high demand for assisted living facilities.
The same income property investors would also realize that medical buildings, particularly specialized ones, will be in great demand, due to the pressure on hospital facilities to decrease the number of admitted patients and other factors.
The 3 Most Important Factors to Look For In a City
There are three important factors to look for when deciding which city to invest in a commercial income property. All are critical but are easy to determine with the help of statistics readily available from the economic development department, or better yet, online.
New Construction
New construction is one of the best indicators of a city that is set for growth. If city plans indicate that new highways are being built, or neighborhoods are being expanded, then that is a good sign of potential. If investors, financial lenders, and developers have created a plan to invest in the city, then it’s a possibility that the commercial property market in that city is due for an upswing.
One important thing to watch for, however: don’t assume that all new projects in a city are guaranteed to succeed. Sometimes a new project is based on wishful thinking for an area of the city (or an entire city) that’s on its last legs. This might just be a last-ditch opportunity to rescue a sinking ship – in which case you’ll want to stay as far away as possible.
Population Growth
A city whose population is growing is one where new housing, office, and other commercial properties will be in demand. This is easy enough to determine by checking online.
The Census Bureau, for example, has an easy to read table that gives you important data about any city in the U.S. with a population over 5,000. In addition to overall population numbers for the last full year and the year before, you’ll also find important statistics on the number of housing units, the number of permits issued, the percentage of each age group, and the number of people in the job force.
This helps you determine not only if the city is growing, but also what age group (millennials vs seniors), family unit (singles or young families) or income is dominant. An influx of seniors could be great if you plan on building or buying an assisted living facility – but not so great if you’re interested in office properties.
Job Growth
This is one of the most important factors to look for when considering which state to invest in. It’s a fact that if there is are a growing number of jobs available in the area – particularly if the jobs are available from more than one company – then you’ve got a winner.
The opposite is also true: if there is no job growth, then there won’t be any tenants – regardless of the type of commercial income property.
Some of the statistics for job growth can be found from the Census Bureau, but you should also a good idea to check out the website of the city’s economic development department. Be sure to go back at least three years in order to get a clear picture.
If you’re able to pair the right timing strategy with the right location, then you will be able to optimize your chances of finding an excellent income property investment.
