Market & Asset Selection

November 2025

In real estate investing, where you invest often matters as much as how you invest. Market and asset selection shape demand, cash-flow stability, downside risk, and long-term outcomes. Even strong operators and well-structured deals can struggle if they are tied to unfavorable markets or asset types.

This article explains how passive investors should think about market and asset selection, and the factors we prioritize when evaluating opportunities.

Why Market and Asset Selection Matter

Real estate is local by nature. Demand, pricing, and risk are influenced by factors such as:

• Job growth

• Income growth

• Population trends

• Employment diversity

• Regulatory environment

Asset selection then determines how a property behaves within that market. Together, market and asset selection establish the baseline upon which operations, leverage, and strategy are built.

Market Drivers We Look For

When evaluating markets for multifamily investment, we focus on a small number of fundamental drivers that influence long-term demand and pricing power. These are not guarantees, but indicators of durability.

Job Growth

Sustained, diversified job creation supports renter demand. We typically look for markets with job growth above ~1.5% annually, particularly when growth is spread across multiple industries rather than driven by a single employer.

Income Growth

Rent growth is ultimately constrained by renters’ ability to pay. Healthy markets tend to exhibit income growth of roughly 1% or more per year, which supports rent increases without creating undue affordability pressure.

Population Growth

Net in-migration reinforces housing demand. Markets with population growth of approximately 1.5% or higher often benefit from sustained absorption, particularly when new supply is measured.

Employment Diversity

Markets are most resilient when growth is supported by a diverse employment base. Areas reliant on a single employer or industry can experience sharp demand shocks if local conditions change, while markets with multiple employment drivers tend to exhibit steadier renter demand across cycles.

Landlord-Friendly Jurisdictions

Regulatory environment matters. States and cities with clear, efficient landlord-tenant laws and moderate regulation offer greater operational flexibility. Markets such as Texas, Florida, and Arizona tend to rank favorably, while jurisdictions like California and New York present additional complexity.

Submarkets Matter More Than Headlines

Markets are often discussed at the metropolitan level, but real estate performance is ultimately driven at the submarket level. Within the same MSA, demand, supply pipelines, renter profiles, and pricing dynamics can vary significantly. New supply may be concentrated in specific corridors, while established submarkets may exhibit tighter occupancy and steadier demand.

Evaluating submarkets helps investors understand:

• Where demand is durable

• Where new supply is being delivered

• How a specific asset is positioned relative to its immediate surroundings

Headline statistics rarely capture these nuances.

Affordability & Housing Metrics

Affordability provides important context for rent growth assumptions.

Two benchmarks are particularly informative:

• Rent-to-Income Ratio
  Rents below ~30% of median household income suggest room for sustainable rent growth. Higher ratios may indicate affordability constraints.

• Home Price-to-Income Ratio
  Median home prices at three times income or higher often support rental demand. When ownership becomes too affordable, renters may buy instead of rent.

These measures help assess whether renting remains the most viable option for most households in a given market.

Asset Selection Shapes Behavior

Different asset types behave differently, even within the same market.

Asset selection influences:

• Cash-flow stability

• Sensitivity to economic conditions

• Operational complexity

• Capital expenditure requirements

A broader discussion of how asset classes behave across cycles is covered in Real Estate Asset Classes: Risks, Returns, and Where Syndications Fit.

Primary vs Secondary and Tertiary Markets

Market selection also involves tradeoffs. Primary markets often offer greater liquidity and perceived stability but may come with lower yields and higher entry pricing. Secondary and tertiary markets can offer stronger cash flow and value-creation opportunities but may involve smaller buyer pools at exit.

We are comfortable operating in secondary and tertiary markets that meet our growth and affordability criteria, particularly when fundamentals support longer hold periods and durable cash flow.

Neither approach is inherently superior. Alignment between market fundamentals, asset type, and execution strategy is what matters.

Market Risk vs Deal Risk

Not all risk comes from the same place.

• Market risk reflects economic, demographic, and regulatory forces

• Deal risk reflects underwriting assumptions, leverage, and execution

Strong market and submarket selection can help cushion operational missteps. Weak market selection can amplify even small errors. Understanding where risk originates helps investors assess whether projected returns are appropriately compensating for that risk.

Final Perspective

Market and asset selection establish the conditions under which a syndication operates.

They do not determine outcomes on their own, but they meaningfully influence resilience, risk, and long-term potential. For passive investors, understanding these factors provides essential context for evaluating opportunities thoughtfully.

Continue Learning

→ Start from the beginning here: Passive Real Estate Investing Learning Guide

→ Next recommended read: Financing & Underwriting Basics