Oftentimes breaking into one of the largest markets such as New York or Los Angeles requires time to learn the market and figure out how to penetrate it. In addition to understanding the real estate landscape, it can take a while to understand the drivers of the market. That said, if you have the Insider’s Edge, you can meet the right people and gain the inside track, which can sometimes be even more valuable in these markets. Understanding zoning regulations and tax abatement programs can also help you find opportunities.
With that in mind, let’s talk about how to invest in some of the most competitive markets in the world.
Work with the Existing Rules and Regulations
When navigating a complex market, you’ll want to be aware of the framework involved. There could be regulations related to rental growth, land development, and density. For those who have figured out approval processes and how to get things done there could be more opportunities. Capital partners will typically look for someone with expertise who knows how to deliver and execute in an area.
Understand Market Demand and Supply
One of the defining characteristics of complex markets is their supply-demand imbalance. These regions often have growing populations, strong job markets, and increasing housing needs, but they may struggle to deliver enough new units. In the case of Los Angeles, even before the devastating wildfires broke out in the city, the region was already facing a housing crisis.
In New York City, at the time of this writing there is a 17% vacancy rate of office availability, which is close to 100 million square feet. It simultaneously has one of the tightest multifamily markets in the country, with a 1.4% vacancy rate. The city has stated there is a need for more than 500,000 housing units.
Leverage Local Expertise
One of the most effective ways to navigate complex markets, or really any market, is by building a team of local experts. These professionals might include contractors, architects, attorneys, and property managers, and they will bring insider knowledge of the area’s current and upcoming challenges and opportunities. Professionals who have operated in the city for several years or longer may be able to draw on their experience, which can help you avoid oversights such as misinterpreting zoning requirements. I helped co-found an organization called the Real Estate Services Alliance (RESA), which offers best-in-class service professionals for New York City. For new investors in a market, this organization gives them access to a whole team of people who can handle every aspect of a real estate transaction.
Adopt a Data-Driven Approach
Rather than making decisions based on emotion, you can turn to data to find trends and identify projects to pursue. Even if you don’t have access to an extensive system, you can still rely on readily available data to guide your decisions. Check for key metrics such as population growth, job creation, rental demand, and vacancy rates. You can also look at sales comps to compare previous transactions with the opportunities you’re considering.
Once you’ve identified a promising market, you’ll want to get on the ground to carry out more research. You might look for neighborhoods that are experiencing the fastest growth. Check if there are infrastructure improvements planned that could drive future demand. By combining hard data with market insights, you can make informed decisions and reduce your risk.
Be Ready to Shift and Diversify
Navigating complex markets tends to require flexibility. If you’re in a changing area, you may be able to obtain properties and then improve them. Over time their value could increase as market conditions improve.
Even if you have a plan in place, Covid showed us that you may need to adapt and change. For instance, if interest rates rise, there could be other opportunities to explore that align with the market conditions. Diversifying your portfolio geographically or by asset type could be another way to have a layer of protection in place from local downturns.
While complex markets certainly come with their own set of challenges, there can also be rewards to reap if you have the right skills and team. By taking a strategic, data-driven, and resilient approach, you can position yourself competitively in even the most fast-changing real estate environments. Working with the right team could set you up for ongoing success and returns that outperform the market.
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