Updated: Apr 23, 2020
fyre CAPITAL only invests in those markets around the country that are most poised for growth. How we identify those markets follows a systematic approach which ranks all markets included in our study. While the primary focus of our investments is cash flow, that is the underlying profitability of individual properties, we choose those properties within the best markets. This article will walk you through some of the metrics we focus on when identifying those markets.
Price to Rent ratio is a metric used to evaluate market rents in comparison to the property’s overall market value.
In many areas of the country such as San Francisco, Los Angeles, Boston, NYC, and others, market rents cannot cover the mortgage on a property using typical leverage.
Especially in markets where rent control measures have been implemented. Investors in those markets rely on appreciation to make a return more so than cash flow. Price to Rent ratios in these markets currently are high enough that we largely don’t consider these markets. Instead, we take look at the following metrics across the country:
5yr Unemployment Change
Population Age & Demographics
Top 10 Employers
Supply & Demand
Unemployment trends are a huge determinant of the growth prospects of a community. They reflect not only the health of the community, but also the forecasts made by businesses moving into or leaving an area. We look for both a positive trending unemployment rate (lowering) and also the degree of that change relative to national unemployment numbers.
Overall population growth is another key factor when evaluating markets to invest in. The census department provides detailed statistical data on every market in the US. Along with that publicly available information are private data providers that also serve to paint a better picture of population data. We focus on markets who are showing the most growth.
Currently (July 2019), central Florida including Tampa, Orlando and Jacksonville are showing as the fastest growing markets. Alongside Florida are most of the markets in the southeast including Georgia and the Carolinas.
Those markets are referred to as MSAs by the census bureau. Much of their data is broken down by MSAs. However within each MSA are multiple cities, not only are the best MSAs nationwide identified, but also the best cities within each MSA.
Population Age & Demographics
The market segments that make up the renter pool are traditionally the young and the old. That is changing as more young adults comprise a larger portion of the renter pool. Household formation occurs at a later age than in years past as families form later. Middle aged adults are the primary buyers of single family homes, so we look for them to be a minority proportion of the population relative to other MSAs and cities.
The marquee example of a market with poor job diversity is Detroit. As American car manufacturers left the city for cheaper labor in other countries like Mexico, the entire local economy of Detroit collapsed. To invest in real estate in Detroit prior to the collapse is to invest also in the domestic auto industry too. It’s for this reason we avoid such markets. We focus on markets that show good job diversity. We don’t want any one industry representing over a certain percentage of the overall labor force. The markets we focus on must be able to withstand an industry leaving to mitigate risk. This extends to individual employers as well.
Top 10 Employers
Just as we don’t want one industry representing a disproportionately large amount of job diversity, we also don’t want the vast majority of jobs within each industry in the hands of a single employer. Industries change, and so do individual employers within those industries.
We focus on markets that have great overall job diversity, as well as healthy competition within those industries from multiple employers.
As real estate investors attracting tenants, the last thing we want is a very powerful employer in terms of workforce size leaving and taking all of our tenants with them. So therefore we simply don’t invest in markets where that is possible.
Supply & Demand
The above metrics could be considered ‘macro-level’ indicators of a geographical area’s health. Alongside that are multiple ‘micro-level’ indicators specific to real estate. These indicators reflect the behavior of population in relation to the rental pool of available apartments.
Vacancy Rates - The higher the average vacancy rate, the lower the occupancy rate. The lower the occupancy rate, the less revenue we collect. Generally it's not good to have 100% occupancy, this reflects a situation where rents aren’t maximizing what the market will tolerate. However we invest in markets with a healthy overall vacancy rate.
5+ Unit Building Permits - This reflects the supply side of things. We want to know what the next 5 years looks like in terms of supply. Are developers building additional units? A lack of building permits could mean a few things...either developers are reluctant to invest in a market OR demand is simply going to outpace supply. We invest in markets where the latter is projected to occur.
Total number of apartments - hand in hand with building permits is total number of current supply.
Median Rent - When underwriting a property to determine its profitability and prospects for cash flow, we look at median rents. This will paint in some part a picture of what the market will tolerate. We look at comparable properties’ median rents, and also target properties which reflect the level of amenities and condition we are looking to match.
We look for markets that are poised for significant growth as reflected in all available sources of data regarding a market’s condition. Our strategy is rooted in finding great deals with the most opportunity to add value, as such we do not invest for appreciation. Investing for appreciation for us is akin to speculation and we avoid markets which rely heavily on appreciation. Instead we are value investors and focus on cash flow. Any appreciation that occurs is icing on the cake.
Invest with fyre CAPITAL
fyre CAPITAL is a commercial multifamily investment firm. We purchase and/or partner in 150-600 unit, value-add apartment communities in fast-growing Tier 1 & 2 U.S. markets. Together with our strategic partners, fyre CAPITAL represents over 500 Million Dollars of successful real estate acquisitions. Our developers, sponsors and capital partners have amassed a network of over 1,500 unique investors. We provide new opportunities to invest in projects targeting a 14%-21% Internal Rate of Return . If you would like to join us on our next project, your first step is to Submit an Interest Card. We look forward to partnering with you.