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Smart Real Estate Investing Uses Demographics
Demographic trends influence almost every aspect of life, from business planning to provision of healthcare, from education to style. Age, income, ethnicity, gender, mobility, employment and other demographic factors determine the shape of our society.
Real estate is no less affected by the ebbs and flows of demographic trends, particularly income, aging, family situations and employment.
For commercial real estate investors, the stakes are particularly high. Investing in commercial real estate, for example requires the ability to forecast where there will be a growing population, and/or where the population's average income will be increasing.
In fact, commercial property investment requires a deeper understanding of demographic data; it is not just the population trends that need to be considered, but the demographics of the competition. And even those cannot follow a set formula.
For instance, an entrepreneur looking to set up a new car dealership needs to consider where established dealerships are located and set up shop nearby. Car buyers wanting to compare similar models need to visit several dealerships, so they need to be close to one another.
On the other hand, an entrepreneur looking to set up a new hardware store, should look for an area underserved by the competition or where new residential developments will be opening up. Hardware shoppers can compare brands of similar tools within the same store, so ease of access takes on a greater importance.
Speaking of ease-of-access, traffic patterns can also make a difference, especially near busy intersections. The demographics of traffic can add to the complexity of making a commercial real estate investment.
Understanding where to invest in retail properties is one of the main reasons that demographic mapping is such a popular service," explains Wendy Cobrda of Catosphere demographic data reports. "To visually see the movement of people and their spending dollars helps businesses 'see' where they should open their next store."
Consider also a real estate broker, whose livelihood depends on people changing homes. Economic mobility is a key determinant in the future of his business, as is the economic health of the region.
"I look to see how fast the economy is growing, and how many jobs are likely
to be created as a result, to determine the resources my business will need over the next five years," says Terry Denoux of Go Bend Oregon real estate.
Development planning relies even more on demographic data to determine priorities. The average age of the population is a major factor in the type of housing that will be required over the next couple decades.
"A young population in an area will require more single family homes with multiple bedrooms and plenty of space for children to run," explains Wendy Cobrda. "On the other hand, an aging population will need more hospitals, more medical clinics, more housing that requires minimal maintenance."
Demographic data plays a role in vacation rental real estate, too. "Do you buy vacation rental properties, or do you sell the ones you have now?" asks Steve Curtis, owner of a listing website for vacation rental real estate properties. "Well, that depends on how much disposable income people have for vacations and, more importantly, on the age of the population. A younger person is more likely to backpack through Europe, and stay at a hostel. An older person in more interested in comfort and privacy, which is what vacation rental properties offer."
It also depends on where populations are growing more, as well as where the affluence is growing. If an economic boom is happening in England and France, but not in the USA and Canada, a vacation rental in Spain might prove more useful than on the Gulf Coast of Texas.
"Business planning is just a shot in the dark without solid market data," explains Ms. Cobrda. "Demographic data reports and maps help businesses project market activity into the future, helping to avoid such catastrophes as building stores with no customers or storing a few million dollars of inventory that nobody wants."
Given the high ticket price of real estate, whether residential, commercial or vacation rentals, demographic reports and market segmentation data are even more important.
ABOUT THE WRITER
David Leonhardt runs a freelance manuscript copy editor service, and is a freelance editor and writer himself.
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