Transcript
The five most important things that you should be looking at when you're looking at a real estate investment are population growth, home price growth, income growth, job growth, and a reduction in crime. My most popular course is on Udemy.com. So Udemy is this website, hundreds of millions of users, and the course is called Location Magic. It is a complete course. It is not a precursor, a teaser, a subscription.
It's free. It's complete. We update it once in a year. And it has five metrics. And I show you how to use those metrics.
Metrics are not important. Implementation, usage of metrics is important. The first met metric is a city that you want to invest in or a neighborhood that you want to invest in should have significant population growth. And what the course does is it doesn't just say population growth. It tells you how much population growth should a city have depending on its size.
So Los Angeles is not going to grow as much as Idaho Falls 10 million people versus 153,000 people. That level of growth is not the same. So I basically break it down to small, big, large size cities. And I say, okay, this is the percentage growth. And then I tell people in the course, where do you go find this?
As it happens, population growth is easy to find because it's on Google. You type in population growth Columbus, Ohio and you will see a nice little chart and that you know you can look at points on the chart and you can tell the difference. So population growth and a certain amount of population growth is the first thing that you need to look for. The second thing that you need to look for is income growth. So the population may be growing but if it's but if it's not really leading to tremendous in you know income growth, you'll be fine.
you'll get in, you'll get your rents, but then you won't get rent increases because you want to increase your rents by a certain percentage every year, right? Real estate is a patient man's game. When you get in the first year, you may not make any money, but each year as you raise rents, that's where the money really starts to appear. So, for that to happen, people need to have a income growth. And I tell people in the course, you need to look at the city's income like Phoenix, and then you need to look at the specific area like Aendale.
So, you've got to do it twice. City level, neighborhood level. Look at incomes. The third one is home price growth, right? Which is intuitive.
You're in real estate. You're going to go out there and you're going to buy an apartment complex or build an apartment complex or buy a single family home. Aren't all of those prices influenced by the prices of homes. So, the prices of, you know, how fast are home prices going up in that city and how fast are they going up in that neighborhood? And again, I give you specific numbers because it's not important to just say, "Oh, yeah, home prices went up 10%." Well, uh, maybe the number is 12%.
And over what time, right? It isn't important for them to go up 10% or 12%. But over what time? Over 6 months, 12 months, 24 months. So, as a quant, we try and figure out what duration of time do we want to use?
What's our benchmark? What's our minimum level? And then how much further above that should you get? and how should you rank a city? The fourth one is crime reduction.
What we have found in every single case, whether it's Provo, Utah, Northwest Arkansas, or Idaho Falls, big cities or small cities, as a city moves forward, its crime reduces. Now, if you're watching CNN, CNBC or Fox News, you might think crime is increasing. that that's their job to, you know, get eyeballs and give you bad news. But crime as a whole in the United States has been dropping for decades. Now, we did see a pickup in 2021 after COVID and then it sort of plateaued again.
But in general, crime has been dropping. So, it's not enough for your city to have lower crime. It has to be its crime has to drop faster than other cities. So, we provide the kind of those kinds of numbers saying, "Well, here's where you go and find crime data. And here's how much crime should be dropping by in your city.
And a lot of people are like, why don't you look at education? You know, quants know this. Education is inversely proportional to crime. So when I'm looking at a drop in crime, I am looking at an increase in education, right? Increases in education lead to drops in crime.
So my drop in crime methodology is actually a increase in education methodology in disguise. So that's my fourth metric that I use. And then the fifth metric which is the most important and has the highest weightage in our numbers and the highest weight wage in the Location Magic course is job growth. It doesn't matter if the population is growing. the total number of jobs in that market have to be growing and they have to be growing by a certain velocity and hopefully there are certain kind of jobs and what's interesting is all of my other metrics are over years but my job growth metric is over the last 12 months.
Job growth is instant gratification. If you lose your job today, next week you're going to spend less money. If you get a better job the following week, the week after that, you will spend a lot more money. And so our ability to spend money and our thoughts about spending money are directly tied to our job today. So looking at job growth in the last 5 years does me no good.
I really need to look at job growth in a very short way. Luckily, while the United States is uh government is terrible at giving you brand new data on other things, we are marvelously good at job data. You know why? Social Security. As soon as somebody loses their job, we've got to start cutting them social security checks.
So, we got to have that data in real time. So, the government actually publishes job data every month for the previous month. So, I know exactly what's going on in the city because I'm looking at job data, the same job data that you can read on Google or Yahoo. I'm looking at that. But then I'm going to hm, this looks interesting.
I'm going to go to the Bureau of Labor Statistics website where every month they have this amazing Excel spreadsheet that shows me job growth for every city in the United States. It's in every metro in the United States. And I can just go sort it and look at why is this city gaining 5% job growth in the last year? 5% is absurd. Job growth in the US is 1.1%.
Five. Something weird must be happening. Let me Google Burlington, Vermont. Oh wow. Oh wow.
Burlington, Ver Vermont is only a couple hours from Boston and it happens to be 20 minutes from a very bougie, you know, ski place where all these VCs are buying chalets. Oh, that place is looking like Park City and Burlington's the only city close to it. Oh my god, look at what's happening to home prices. All of that happens because all of a sudden you start seeing these amazing job growth trends. You see how this works, right?
It it just snowballed.