5 Tools For Evaluating Your Real Estate Market
Sara Lynn Peruo
// March 16, 2018
In this day and age, it is no secret that investing in real estate can be a great way to increase your ongoing cash flow and build wealth, but how do you know where to look? Before you place your first offer it is crucial to become familiar and comfortable with the market in which you plan to invest. As an investor, it is vital to recognize that the ability to acquire a property at a deep discount does not necessarily qualify the purchase of that property as a good deal. The strength of any deal is only as strong as the market in which you find it, and no one wants to be stuck with assets they can’t get rid of! Here are 5 analysis tools to use when evaluating the strength of a market:
- BUZZ – Little more than speculation and talk are required to start a hot stir about a new real estate market. Read your local publications and keep your eyes and ears open for what people are saying around town. Where is the new hot neighborhood to move to and who can be expected to move there in the next year? Where are they moving from and what makes this new neighborhood so appealing? Are they renting or purchasing and what do they expect from their new homes? Don’t rely merely on buzz alone, though. Unless all information gathered from the 4 remaining tools aligns, market buzz may seemingly turn from hot to cold overnight!
- AREA DEVELOPMENT – Keep a pulse on what commercial investors are doing in the market. An expanding area can be a good sign of things to come. People tend to move to areas in which they can conveniently access the everyday things they need. What sorts of businesses are arriving to the area and what types of people will they attract? Are they chain restaurants, strip malls and grocery stores or startups, tech firms and trendy date spots?
- NEARBY EMPLOYMENT – Nobody loves a long commute and so people tend to move within relative proximity to their place of employment. Will people new to the area be able to find employment nearby? Is the neighborhood centrally located or located nearby an interstate highway or main roadway? Are there large businesses opening in the area that will hire many new employees in search of nearby places to live? Do the types of employment these businesses offer align with the sought-after lifestyles of the people in the categories above?
- DEMOGRAPHICS – Buyers tend to search for locations with the best combination of the following: strong school systems, lower tax rates, low crime and unemployment. Even if your buyers group aligns with all the above analyses, your market could quickly turn off potential buyers if one or more of these things is less than desirable.
- REAL-TIME SALES DATA – The 4 tools above will take some consistent time and careful consideration to apply, but the real and important work happens when you analyze real-time sales data in your market. For the most accurate analysis, you must find the most current information possible! Compare the total number of transactions in the area a year ago to the total number of transactions today to get a feel for whether the market is growing. Also consider the number of new housing permits and a comparison of average sales price and days on market over time. A trusted real estate agent can go a long ways in helping you retrieve the best data.
Ultimately, the more you research your market the more comfortable you will be making investment decisions and putting in offers. If you are new to investing, begin by working in a smaller area and expanding outward. Use the 5 tools above to avoid making a potentially terrible deal by putting your money in a stagnant market.