Have you ever attempted to break down a market for real estate investing? I will offer some methods and criteria that could help you determine if a market meets your desired goals. Perhaps you are still developing your criteria and looking for a place to start. A criteria for evaluating and comparing markets can be a complex task and we could literally conduct a multi-day training around the topic but let’s get started with some introductory ideas to get you rolling.
The question whether to start in your own backyard or remote investing is the first question to address. Cash flow can be a great basis for determining the answer to that question. If you live in an area where rents do not exceed expenses then perhaps you’d consider an area where you have positive monthly cash flow month after month. I’d strongly suggest this as positive cash flow will help you survive vacancies, surprise expenses and down turns in the market. In my experience it’s an easier task to find money partners for deals with positive cash flow but that’s just me.
Let’s talk a little about your team you will need on location. You can start building this team well before you visit the area. The team you build can either strengthen your stance that ‘I am a genius, this market is exactly as my research predicted.’ Or the team you build can perhaps help you determine this market is not as you originally thought and perhaps worth finding a different area to invest. Your team will be specialized to work with investors and share information and reports with you from a distance.
Virtual meetings with multiple realtors, property managers, mortgage brokers, wholesalers and other investors will help you determine who are best suited for your needs. There are many private groups on social media for markets with potential team members for you to select from. In fact, my most recent market selection process I obtained most of my team this way through social media.
Once you have selected some potential team members visiting the market yourself is a consideration. Now, some do this and some do not. The choice is yours and can depend on distance, time allowances and how you choose to run your business. Anytime I have had face to face meetings the relationships always seems to be stronger. Spending a few days in your market to meet team members and explore the areas in my opinion is good use of your time and a worthwhile business trip. I like business trips!
During your research these are some criteria and questions you can consider:
1. Target market:
Why this market?
Why this market now?
2. What are the growth areas in that market?
Growing population, growing incomes, increasing property values and rents are common in areas with strong upside.
Growth is a huge topic for market selections.
3. Build map and grid system.
4. Determine your maximum allowable offer.
To determine growth areas of city census.gov and fhfa.gov shows where to focus our efforts in the chosen area.
Here are some other considerations for you:
What areas in the city on map are growing and appreciating?
Why are they growing?
Does your market have the following and what is important?
· Colleges?
· Universities?
· Medical?
· Financial?
· Large scale employers?
· Diversity in employers and job sectors?
· Entertainment area?
· New construction in the area?
· What businesses do we want to be nearby? Shopping, restaurants, Starbucks, bus stops?
Create a grid on your area map to identify areas we want to invest in, now meet with the realtor.
Info from Realtor:
· Average home price in the area?
· Average sq footage of house in area. Stay with average size as much as possible.
· 3 bedroom, 2 bathroom house is ideal in most markets.
· Flips: average bed and baths that are selling?
· What are average Days On Market in this area?
· We can make offers based on home being on the market longer than the average.
Determine best strategy to use in different areas:
· Short term rental
· Long term rental
· Flips
· Multi family
Get multiple properties to get some scale.
Determine maximum allowable offer (MAO) based on the grid and based on the type of property.
Then determine the level of upgrades you plan to do based on the area.
As you can see this topic is complex and can involve much research. In my experience it is time well spent and each investor has their own goals and business plan to work towards.
Good luck in finding your market!