What We Look for in a Submarket Before Acquiring

Submarket selection is more granular than market selection. A great city can have weak submarkets. A weak city can have strong submarkets.

Here is what we look for at the zip code level before committing to a deal.

Median Income and Income Growth

Submarket median household income tells you the rent tolerance. Income growth tells you the future rent tolerance.

We look for submarkets where median income supports market rents at the 30 percent rule. Where rent is 30 percent or less of gross household income.

Submarkets where rent is already 35 plus percent of income are stretched. Future rent growth is harder to absorb.

Employment Concentration

Within the submarket, what does employment look like. Diversified employer base. Healthcare facilities. Schools. Manufacturing. Retail. Government.

A submarket dependent on one large employer is fragile. If that employer struggles, the submarket follows.

School District Quality

Even for non family rentals, school districts affect long term submarket trajectory. Good schools attract residents. Resident demand drives rent. Rent drives values.

Look at school ratings and trends. A submarket with improving schools is gaining strength. A submarket with declining schools is losing it.

Transit and Connectivity

Access to major employment centers. Highway proximity. Public transit. Bike infrastructure. Walkability.

Submarkets with good connectivity to job centers have stronger rental demand than isolated submarkets.

Crime Trends

Crime statistics matter for resident retention and tenant quality. Trends matter more than absolute levels.

A submarket with high but falling crime is improving. A submarket with low but rising crime is deteriorating. Pull five year trend data.

New Development Activity

Building permits in the submarket. New construction underway. Adjacent development pipeline. Public improvement projects.

New investment signals submarket strength. The absence of new investment can signal stagnation or decline.

Comparable Sales

Look at multifamily transactions in the immediate submarket. What did they trade at. What is the cap rate. What are the rent levels.

This is the comp set you will be priced against at exit. Knowing the comps cold is part of underwriting any acquisition.

Rent Growth History

Pull five year rent growth data for the submarket. CoStar, ApartmentList, RealPage, or local rental surveys.

Strong sustained rent growth tells you the submarket has pricing power. Weak rent growth or declining rents tells you the opposite.

Putting It Together

No single metric makes a submarket. The aggregate picture is what matters. We score submarkets on each of these dimensions and look for places where most factors are pointing in the right direction.

The discipline is to walk away from submarkets that fail even if the deal looks attractive. The submarket is more durable than any individual property.