Criteria to evaluate a new market

1) Does the number of rented vs owner occupied homes matter to you?
2) What is a good range for DOM?
3) How do you establish ARV? Do you work with a Realtor until you feel comfortable with the market?

Patrick Karbon

Residential Real Estate Agent · Southfield, Michigan

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Aug 22 '10, 09:42 PM

Hi Mike,

You have some great question and I'll tell you what I know from experience and the honorable Ron LeGrand:

to answer your questions:
1)Yes- Rented vs Owner Occupied Homes ratios in a given neighborhood is extremley important as more Owner Occupied Homeowners will take care of their block/neighborhood better. Period. They'll tend to have more organization, block-clubs and government influence when it comes to services/police presence/being heard when change is needed.
2) DOM is a good indicator of the seller's motivation/willingness to sell low IF the home has been on-market for a long time. The Pro's of this analysis are that you'd be contacting (most likely) motivated sellers if your DOM range is 30 days or more. The Con's are that lot's of other people have already passed on this house for one reason or another. You need to be able to get front+center of people who have recently decided to sell and are motivated. Not the person who's just trolling their home out there and won't take a discounted/wholesale offer.
3)ARV is established by running comparable sales of other homes similar to your subject deal. (Characteristics, location, within 6-12 months MAX) A realtor is usually needed for this as the MLS is usually the mose current+acurate source of true sold values. Zillow or other free sites simply aren't as accurate.

Thanks,
Patrick

Edited: 08/22/2010 at 11:35PM by Administrator : Solicitation Removed

Gregory Childs

Real Estate Investor · Bradenton, Florida

262 posts
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Aug 27 '10, 11:06 PM

Mike,
Finding a new market is a "long/medium term" objective. In our case, we look at more than just the real estate statistics - we'll review demographic data (employment, net migration, income, permits, etc) and try to take a 360 degree view. The book "timing the real estate market" (Campbell) looks at a more formula based approach to evaluating when a market is ripe to invest and discusses these factors in more depth. Some of this data is available on a neighborhood/zip basis other only at the county level.
If the underlying trends in a market are poor then that will impact the DOM, etc.

As far as ARV - you can only do this by carefully examining comps. Also, make sure you account for time in your value. If the rehab is going to take three months look at what the neighborhood pricing has trended over the last two quarters and adjust your projections accordingly. Nothing wrong in investing in a market that is still trending slightly downward as long as you are adjusting your ARV accordingly.

FYI, if you are investing in regions that you do not know personally you need to final a local authority to bounce your investments off of. They don't need to be involved in your decision - just act as a sounding board; so you can be made aware of the new "garbage dump" or "drug and rehab center" that is beiing considered by the local council for approval just half a mile away! Your local team will pay dividends and the cost to keep them happy is a lot less than a bad flip.
TTFN,
Greg