Real Estate Investing Basics

How to Invest in a New Real Estate Market

Expertise: Mortgages & Creative Financing, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics
46 Articles Written

A friend of mine recently asked me about how he should start going about when finding a market to invest in. As I answered him on how to approach the market, I noticed his eyes started wandering when I continued to spew information out like a loose fire hydrant for the next fifteen minutes. My diplomatic friend suggested that I should write all my thoughts down instead. So here I am.

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How Healthy is the City?

As I stressed in my podcast before, I'd look at where I invest based on how healthy the city is. I do not feel comfortable investing in a city with a declining population such as Detroit. A real estate investment can sometimes take as little as a year or as long as decades before you realize your profit. You never want to be investing in a city where you have no idea where it is going to go in the short to medium term.

Thus, when you pinpoint a market to invest in, make sure you drive around the entire city. Every city has its good neighborhoods and its bad ones. Even within the city there are areas where people are leaving and where people are clamoring for. One of the ways to look for a growing area is to see how the infrastructure is. Is there a Wholefoods? Are there parks? What about the library? Where is Target setting up shop? The more developed an area is, the more likely that the neighborhood will be staying for a long time. Obviously, do check out the houses as well. Good curb appeal typically means that the neighborhood has good homeownership pride. I tend to peek at what cars people are driving as well.

Know the Home Prices in Every Neighborhood

I would then go to Redfin or Trulia and start looking at the price ranges of the homes. For the most part, prices will be higher in premium neighborhoods. But having done the drive, you might start noticing certain neighborhoods which are good neighborhoods but prices haven’t caught up yet. Sometimes you can find bargains there. In any case, after all this you’d have a pretty good idea of whether the city would be worth investing and where you would want to invest in at.

Side note, certain investors enjoy chasing higher rental yields by investing in lower quality neighborhoods. This is a personal choice. I cannot say which one is better. Personally, I prefer to get a lower yield by investing in better neighborhoods. I do not have the time nor the patience to deal with lower quality tenants who tend to reside in those neighborhoods. Time is valuable to me and I believe in investing in good neighborhoods to avoid headaches.

Find the Right People

Then I would visit several property managers and explain to them that I am planning to invest in the city and is potentially looking for someone to work with. Again, depending on where you are and what you do, you may not need a property manager. Nevertheless, they are a good source of information as to which neighborhoods tend to have better tenants. This process is just sort of reaffirming what you have discovered so far.

Lastly, I will now find a real estate agent. I'd want a real estate agent who is willing to hustle and has an investor mindset. An easy question to ask is whether he or she invests in real estate. A real estate agent who does not invest in real estate is not one that you would want to have. Obviously, this depends on the market. But if the market is good, why isn't the real estate agent investing? Since you will be working with the agent most of the time, you have to test the agent to see if he or she knows as much as you. On the flip side, you have to show the agent that you are a serious investor. If the agent senses that you are just here to play around, the agent is not going to spend a lot of time on you. You, too, have to impress the agent with your knowledge of the market. But do not be afraid to try sending out a bad offer and see if the agent is there to look out for your interest. If you try to "overpay" for a property and your agent is not there to stop you, it is time to look for a new agent.

With that being said, good luck in investigating your next market!
Photo: Neil Kremer

By Leon Y.
Leon Yang is an active real estate investor in Las Vegas. He is a buy and hold guy who also likes to flip from time to time. His main passion is to t...
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    Replied over 7 years ago
    I agree on the agent testing. I’ve actually got a local agent who is willing to work fixed rates with me due to me bringing future deals to her. Firstly, it’s a fixed amount, not percentage based on how much the property is. I’ve never seen why you would do business with someone who gets paid according to how much your spending. Then of course their best interest isn’t in saving you money. It helps we are planning on doing more deals together in the future. I try to structure things so as to create win/win scenarios, people are more motivated when they can visualize what’s in it for them.
    Leon Yang
    Replied over 7 years ago
    Good to hear you are structuring a win win scenario for both sides!
    Replied over 7 years ago
    I used to only buy what I know but now I rely on experts – local experts- to help me locate good deals in markets I really don’t know well. It takes a bit of loss of control to allow this to happen but after you gather some initial info, I then scour that market for comps, questions, issues and then riddle the expert with questions. If the answers make fundamental sense and the opportunity is killer, I pull the trigger. Not all markets you know are going to be good markets to invest, but if you can add experts to your team you trust, you’ll find good deals elsewhere.
    Leon Yang
    Replied over 7 years ago
    Local experts definitely matter! I still remember a RE agent in Stockton, CA saying how the Las Vegas market is a dead market in 2011. Good thing I didn’t listen!
    Ziv Magen
    Replied over 7 years ago
    Spot-on. When investing remotely, you stop picking tenants, reno experts and/or birddogs, and start picking local experts to do the lot in your stead. Scary feeling of lost control, as Leon describes so accurately, to those of us used to doing it all hands-on, but once you hone your team-selection skills, a whole new range of opportunities opens up in front of you. 🙂
    Leon Yang
    Replied over 7 years ago
    Going back to what I wrote, it is probably better to start doing things hands on to get a familiarity before building that team
    Leon Yang
    Replied over 7 years ago
    Local experts definitely matter! I still remember a RE agent in Stockton, CA saying how the Las Vegas market is a dead market in 2011. Good thing I didn’t listen!