Value VS Vanity Market
Choosing and analyzing a market is an inevitable step of your first income property investment. The question is, how do you select the most profitable market and one that fits your investment plans?
There are many factors to be considered when opting for a market. However, I would like to focus on one specific aspect my mentor pointed out - the difference between value and vanity markets.
You might not find these terms to be directly related to real estate investing. Hence, I will try to explain this aspect as clearly as possible, since Google won’t provide many helpful resources on this topic.
The Difference Between Value and Vanity Markets
Most simply put, the term vanity market refers to any city where people are likely to move to for the sake of pride or satisfaction. For instance, areas such as New York, Toronto, or Paris can be considered vanity markets. Any city or region that attracts new buyers purely because of the amenities and its location is considered a “vanity market.”
Value markets, on the other hand, are cities that attract people because of other factors such as low crime rates and favorable employment opportunities. Value markets are not necessarily “cool places” to live in but rather ordinary locations where families are likely to find good employment and schooling opportunities.
The question is, which market is the best option for your first income property investment? I personally lean more toward value markets because they typically have lower average prices. Thus, value markets are much easier to get into, especially if you’re a beginner in the investing space. Besides, value markets are far less likely to be overinflated compared to vanity markets.
Choosing the Right Market for Your First Investment
I’ve recently put together an entire blog post on how to analyze a market or a property before making an investment. (Link here). The process of choosing a market will include researching and understanding historical data, cross-referencing multiple resources, and looking into market factors such as the housing inventory, property types that are highest in demand, percentage of renter-occupied households, biggest employers, as well as most active agents and investors.
I personally would not invest in any market with a population of fewer than 50 000 people. Markets with less than 50 000 people are likely to go through significant market changes in case of a population drop. Hence, the population needs to be over 50 000 people for me to consider investing in it.
Moreover, it is best to look for evergreen areas, that is, the top three sought-after places to live in those specific cities. Look for neighborhoods and areas where A+ tenants would like to move to. These are the kind of people you want to rent to in order to avoid complications further down the road. By investing in areas that attract your target tenants, you will be killing two birds with one stone.
Go after undervalued properties located on desired streets in evergreen areas of a vanity market. This is one of the best formulas to keep in mind when choosing a market for your first or next property investment.
Speaking of which, my area of expertise is helping people make their first income property investment and manage it profitably and passively. I have put together the knowledge and wisdom of 100s of investors I’ve met and worked with in order to provide clear guidance to beginner investors in this space.