Best cities and neighborhoods for real estate investing

Hello welcome to part one of the real focus system.

Which cities are the best and the worst.

In part one I will discuss five key metrics that drive real estate profit.

I call these metrics real focuses by measuring a city by these critical focuses.

You will be able to compare it against other U.S. cities for investment.

As you’ve probably already gathered from the title of the chapter the first real focus is population

growth.

Now let me start this topic with a question.

Do you know what the differences between a real estate investor and a real estate speculator.

Well the difference is that the real estate investor acts based on existing intangible facts.

The speculator exists base.

He invests based on hearsay and gut feeling.

A perfect example of this is the city of Detroit Michigan.

After it went bankrupt about six years ago I started hearing that the city is turning around.

Then I started seeing turnkey providers selling homes in Detroit to unsuspecting Californian investors.

And always the punchline was that Detroit is turning around really OK.

So up on the screen is the population growth in Detroit since 1959 when it was the largest city in America

with well over one point eight million people.

You can see that up on the peak here.

The city has since lost over a million people and last year continues to lose people so look at this

decline and see how consistent it is on the screen and that right there is the year of 2017 where we

are down from one point eight million to six hundred seventy three thousand people.

Now if you’re a real estate investor and not a speculator you look at this slow down in the decline

and you say well maybe Detroit is a future turnaround possibility.

What you don’t say if you’re a real estate investor is I’m going to invest in Detroit because what you

really want to see is this turnaround to flatten and then you want to see at least five years of climbing

population before you can client claim that Detroit has actually turned around and that’s really the

difference between a real estate investor and a real estate speculator and with that I am now going

to define real focus one population growth up on the screen in front of you is the real focus.

If the city is between a quarter million and 1 million in population that’s the city not the metro.

Ideally you want 20 percent population growth between the year 2000 and the year 2017.

I’m going to show you exactly how to figure that out in just a second once again a quarter million to

a one million.

That’s the vast majority of cities in the US that you would want to invest in.

Well then you want a 20 percent population growth between 2000 and 2017.

Now I’ve given you some scenarios of what happens at the cities are bigger or smaller than that.

But as I said the vast majority of the cities that you will look to invest are going to be between that

quarter million and one million in population.

Let’s take a look at some examples okay.

So for my first example I’m going to use a city that you’re going to hear about a lot.

I use Columbus Ohio a lot in my examples.

So I’m going to go to Google.

Look at the screen and I’m going to type in population Columbus Ohio and hit the search button and then

I’m going to see the population of Columbus as it is today.

Now the latest year available to me when I’m recording at the end of 2018 is 20 17 and you might see

future years there as well.

And I’ll tell you exactly what to do if you’re looking at it in 2019 or 2020 and this number is a little

bit different.

So eight hundred seventy nine thousand people give or take a few and the year 2000 the population was

about seven hundred and fifteen thousand.

Now I’m going to pull up an Excel spreadsheet which you will get access to and I will write in the rough

numbers.

So here I’ve got what was that number again seven hundred and fifteen thousand people were in Columbus

in the year 2000 and now today we’ve got roughly.

Let’s take another look.

Eight hundred and seventy nine thousand people and here we see that the population growth over that

17 year timeframe meets real focus.

One it’s higher than 20 percent and Columbus is a between that quarter million and one million sweet

spot that most U.S. cities are that are good for real estate investment so 23 percent.

Excellent.

No.

Columbus meets our needs.

Let’s take a look at another city that’s fast growing Phoenix Arizona.

And we’ll take a look at Phoenix and you’ll notice that Phoenix grows very quickly but also saw a massive

decline during the real estate bust.

That’s because the city really suffered.

But it is a true example of a city that’s recovered well is notice that its steep growth here matches

the steep growth here.

So it took a hit and then it came back just as strong as before.

Consistency of growth is something that you’re always looking for when you’re looking for to invest

in cities and Phoenix shows very consistent growth.

So here Phoenix is number is one point six two million.

So I’m going to write that down in my Excel spreadsheet so one looks like they’re 1 6 2 0 0 0 0 0 maybe

1 more 0.

Now that’s good.

And then in the year 2000 Phoenix was at 1 3 2 7 1 3 2 7 0 0 0.

And let’s drag this down here so we can see what the growth is.

Phoenix is growth is especially impressive.

Why.

Because isn’t Phoenix over a million people.

So when it’s over a million people what we were really looking for is 15 percent.

But what’s really impressive is that it hits the 20 percent benchmark that smaller cities hit.

As cities get larger they tend to slow down.

They don’t grow as quickly as they were when they were smaller.

So Phoenix is very very impressive because it’s almost matching Columbus’s growth.

And it’s a much larger city.

Ok let’s address some caveats about real focus.

One as soon as I talk about population growth the first question that comes up is Neal what about cities

with more or less stable populations for example Cincinnati and you see that up on your screen there.

And that’s not so bad right.

But yes but as you will see by investing in cities that have more or less stable populations you’re

going to miss out on something known as the all ships rising effect now of flipping or short term operation

in these cities might be much more beneficial than a long term buy and hold strategy.

Remember I’m not saying that there isn’t money in Detroit or Cincinnati or St..

LEWIS There’s plenty of money to be made in real estate in all of these cities.

That is if you live there or if you have a strong real estate contact there or you have teams there

or you have the ability to get properties significantly under market.

But for everyone else the risk that you’re taking is very large compared to that potential game.

After all if I gave you the example of taking two airline flights and one flight had a 50 mile tailwind

and the other flight had a 50 mile headwind then most people would select the flight that had the tailwind

right.

Right.

Well think a population loss as a 50 mile an hour tailwind for your real estate flight.

Cities with stable populations don’t have the headwind but they don’t have the tailwind either.

So think about that

OK for real focus on let’s address a couple more caveats.

The first one is remember that when I googled something it’s going to give me the two thousand twenty

seventeen number but I’m already at the beginning a 20 19 at this point of time.

So the number is always a year year and a half behind when it comes to population growth and people

might say Neal isn’t that too much of a difference.

Well I’ve done a lot of back testing and the short answer is it isn’t.

Cities don’t tend to flatten out in terms of growth over a year to year or even a five year timeframe.

What I’ve noticed is it really takes a decade for a city to change when it comes to its population growth

trends.

So taking that data from Google even though the data is a year year and a half old you’re not doing

yourself any disservice.

Just don’t worry about that.

The second piece of this is what about cities that are very rich or very large.

Like what about the San Francisco Bay Area or Los Angeles.

Los Angeles has four million people.

How does that fare on your benchmarks.

Well I have to tell you something that I’m focused more on the cash flow side because I’m finding that

90 percent of my students nationwide when I pull them they’ve said cash flow is very important to us.

Neal we don’t want to get into a scenario where all we need is appreciation and there’s negative cash

flow from the very beginning.

So my my focus really is on cities.

Between that quarter million to one million range because that’s where I feel that the cash flow is

there.

When you’ve got a city as large as Los Angeles your cash flow levels are going to be very very low in

fact you might be negative cash flow so you’re paying money into the property each month.

And I suggest that you stay away from that unless you’re a very experienced investor.

However having said that for cities over a million I’ve got these benchmarks up on the screen 15 percent

for over a million 10 percent for over 2 million so 10 percent is what would apply for Los Angeles since

that’s over 2 million people another question that I get often is.

Well Neal you know right now this is 20 17 here.

What happens if I’m watching this video or using these metrics in a future year let’s say I’m using

it a year from now or two years from now or three years.

Now what happens when this number goes up.

Do you go back still still go back 17 years or do you connect but go back to the year 2000.

The answer is you still go back to the year 2000 but you’re going to add a number for every year beyond

2017 and those numbers are given in your cheat sheet here.

So for each year beyond 2017 at one point to five percent growth that’s what your standard cities quarter

million to 1 million at 1 percent for cities over a million at 2 percent for 4 small fast growing cities

under a quarter million.

What does that mean.

Well let’s go back and look at Google.

Let us say that I am now measuring Columbus but a year passed and so it gives me this right here it

says 2018.

So my benchmark for Columbus because it’s between a quarter million and a million people isn’t going

to be 20 percent growth.

I want Woops I want 20 percent plus one point to 5 percent because of an additional year has passed.

Let’s say two years have passed and the number that’s over here is doesn’t say 2017 it says 2019.

Well in that case you want this number to now be 20 percent plus one point two five plus another one

point two five.

So it’s gonna be twenty two and a half percent.

So essentially what you’re doing is as time is going on and this video is getting older you’re adding

a one point to five percent growth factor for that additional year.

The growth factor is a little bit different.

If it’s you know depending upon whether it’s a very large city or it’s a very small city.

So that allows this metric to scale as time goes on.

So bottom line real focused one population growth is simple but extremely powerful.

By looking at cities on Google within a minute or two you can determine to see what their rate of growth

is whether this is a fast growing city or a slow slow growing city.

And by using the metrics that are up on the screen which by the way I’m going to give you a cheat sheet

of that you can very easily figure out if this city meet your Requirements or not I’ll see you on the topic

2.

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