--- title: How to Leverage Real Estate Market Analysis in Due Diligence description: A thorough real estate market analysis should be part of the due diligence process for any alternative investment involving real estate. image: https://blog.factright.com/hubfs/Blog%20Images/AdobeStock_102937309.jpeg --- behance bloglovin dribbble email facebook flickr github gplus instagram linkedin medium periscope phone pinterest rss snapchat stumbleupon tumblr twitter vimeo xing youtube - [Facebook](https://www.facebook.com/FactRightLLC/) - [Twitter](https://twitter.com/factright) - [Linkedin](http://www.linkedin.com/company/395017?trk=tyah) - [Phone](tel:866-357-7779) [Report Center Login >](http://www.factrightreports.com/Account/Login) - [Home](http://www.factright.com/) - [ABOUT US](http://www.factright.com/team/) - Financial Advisory Firms - [FR Risk Management](http://www.factright.com/fr-risk-management/) - [Report Center](https://www.factright.com/resources/report-center/) - [Product Coverage](https://www.factright.com/resources/list-of-coverage/) - Product Sponsors - [Due Diligence Reporting](http://www.factright.com/due-diligence-reporting/) - [Preparing for FactRight Diligence](https://www.factright.com/preparing-for-factright-diligence/) - [Resources](https://www.factright.com/resources/) - [Report Center](https://www.factright.com/resources/report-center/) - [FactRight Webinars](https://www.factright.com/resources/webinars/) - [FAQs](https://www.factright.com/resources/faqs/) - [Events](https://www.factright.com/events/) - [Weekly Updates](https://www.factright.com/weekly-updates/) - [FactRight Blog](https://blog.factright.com/) - [Contact](http://www.factright.com/contact/) # How to Leverage Real Estate Market Analysis in Due Diligence April 06, 2017 by [FactRight](https://blog.factright.com/author/factright) ![Real Estate Market Analysis](https://blog.factright.com/hs-fs/hubfs/Blog%20Images/AdobeStock_102937309.jpeg?width=320&name=AdobeStock_102937309.jpeg "Real Estate Market Analysis") A complete real estate market analysis should be part of the due diligence process for any alternative investment involving real estate. In fact, it is more important than ever to consider environmental, social and macroeconomic factors in addition to your other due diligence research.  Why? A real estate market analysis complements a thorough financial analysis to present the client with a holistic picture of the fluid environment in which the client is investing.  We recommend taking a critical look at the following factors affecting everything from the local neighborhood environment to current events happening thousands of miles away. We are not saying that you need to be a political science guru, but helping your clients understand the types of events that can influence their real estate investment decision is just good business practice.   A thorough market analysis will help you retain clients over the long term and can go a long way toward avoiding litigation over alleged due diligence failures. ## When considering whether to recommend an alternative investment to your client, consider how the following will affect your recommendation: ### **Economics** The International Monetary Fund predicts a slower rate of GDP growth across the globe for 2017. Currency fluctuations, economic uncertainties and volatile-but weak-energy prices are all contributing factors. Increasing political instability on almost every continent adds to investors’ skittishness.  Banks worldwide are tightening up commercial real estate lending, putting pressure on investors who face increasing competition for debt capital. A higher cost of borrowing may restrict expansion and improvement to existing projects and decrease access to investment in new developments.  Both the rental and home ownership markets will face challenges as credit markets become more stringent and competition for housing decreases affordability, especially for rental housing. Additionally, family incomes have not kept up with the cost of living, making affordability a real issue in both markets. Without affordable housing for employees, businesses may decide to locate elsewhere and local businesses that depend on a vibrant and income-earning population will suffer.  [According to a Pew Research Center Study, median income for the middle class has been steadily falling, almost five percent between 2000 and 2014.](http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/) Median wealth declined by 28 percent after the housing crisis and recession. Everything from college tuition to healthcare deductibles to shrinking retirement savings have contributed to middle class stagnation. The larger separation in wealth means that more lower-income families will gravitate toward affordable rental units and the convenience of urban centers.  ### **Demographics** Interestingly, both Millennials and Baby Boomers are currently some of the most voracious consumers of real estate. And often, they are competing for housing in the same markets. However, Millennials face student loan debt and flat incomes, and thus, many are moving back in with their parents. Baby Boomers are looking to remain in their homes as long as possible, whether rented or owned, and are living longer than ever. Both groups are driving the increasing demand for rental housing.   Cities that have recently improved infrastructure attract residents back. In cities with efficient transportation systems, a walkable lifestyle, availability of jobs, and a robust social life, existing high density housing options can barely keep up with demand. Even suburbs are feeling the pressure to create urban spaces for housing, employment and social activity.  Other things to consider are the emergence of shared types of services, jobs, housing and transportation. Not only do these shared arrangements help people who have seen their real incomes drop, they also serve people working at home, living in urban centers without cars and those needing short-term rental housing in non-hotel environments.  Finally, as consumers continue to shop online, larger shopping malls and big-box stores have had to adapt to these changing habits. Mixed use centers and malls incorporate housing, entertainment, food and transportation services. Smaller, micro housing is also popping up around central markets to create vibrant communities that are affordable and have essential services close by.  ### **Politics** It is becoming increasingly important to first consider the “micro-political” situation in the cities in which you invest. Local political unrest can affect an investment’s potential more than a large-scale disaster. Discussing local political issues with clients can help them assess the risk of changes in tax treatment, asset maintenance, legal fees, collections, social issues and other potential game-changing decisions.  The political and economic climates of any city, neighborhood or community are easily gauged via social media. This public information influences where tourists go, where businesses open-up shops and where people choose to live. Political stability and continuing investment in the infrastructure, transit and education tend to attract residents who are invested in a thriving community.  ### **Energy** Oil and gas markets are expected to be volatile throughout 2017 causing turbulence in capital markets and in oil and gas producing regions. In some of the major US oil-producing markets, lenders are already restricting commercial real estate debt. Employment and local economies suffer when production slows down, affecting demand for housing and whether it remains affordable.  In a global economy, consider how events near and far, will affect your investment recommendations. When advising whether to invest in alternative, include a thorough, holistic-market analysis to help your clients make the best long-term investment decision possible. 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