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<\/figure>\n\n\n\nPrepare for a market shift<\/p>\n\n\n\n
Modify your investing tactics\u2014not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing<\/a><\/em>.<\/p>\n\n\n\n What are the ages, income levels, professions, and other characteristics of the buyers or tenants you want to attract? Who are the most prevalent buyers in a specific area\u2014are they families or single twentysomethings who work in tech? What is the current supply of available properties in this housing market? With this information, you can tailor your investment and marketing decisions.<\/p>\n\n\n\n For example, older, more affluent buyers may want to downsize to smaller but still well-appointed homes. Younger tenants are likely to be drawn to smaller, more affordable housing closer to a city center and entertainment.<\/p>\n\n\n\n You can find helpful information at Census Reporter<\/a>. The site provides a range of city and county data, like population, median age, sex, income, types of transportation, housing occupancy, and types of structures. It also provides context for these details, such as how they compare to other parts of the same state.<\/p>\n\n\n\n The Federal Reserve<\/a> also offers a treasure trove of searchable information.<\/p>\n\n\n\n The rule of thumb is the fresher a listing seems, the better. Older listings imply that they haven\u2019t sold because something is wrong with them.<\/p>\n\n\n\n You can use the following types of information to assess trends in a specific real estate market\u2014and to find comparable properties to those you might be interested in. <\/p>\n\n\n\n This information can reveal early indicators of developing economic shifts, changes in consumer behavior, regional trends, and future housing demand.<\/p>\n\n\n\n There are two categories to investigate during your comparative market analysis:<\/p>\n\n\n\n You can check recent sales by neighborhood on Zillow, Realtor.com, Redfin, Trulia, and RealtyTrac, among others. Use this information to develop the average sales price in the area you\u2019re interested in.<\/p>\n\n\n\n DOM can be a powerful indicator for both individual properties and regional trends. To illustrate the power of DOM, Zillow found that a home that sells within five days<\/a> has a 57% chance of selling for the listing price. In subsequent weeks, that chance falls to 50%, then 39%, and so on. A property may be on the market for longer than average because it\u2019s overpriced or needs repairs or upgrades.<\/p>\n\n\n\n The average DOM\u2014based on all homes listed and\/or sold in a given area\u2014indicates the status of various factors in the overall market. These include oversupply, negative economic indicators, or a major business or industry downturn.<\/p>\n\n\n\n Keep in mind that these numbers are relative. If a region has high DOM, check for patterns over the past year or two to find out if the time to sell has always been higher than in other areas.<\/p>\n\n\n\n DOM is typically available via the multiple listing service (MLS). It can also be found on commercial listing sites like Zillow and Redfin\u2014or ask your agent.<\/p>\n\n\n\n Lowering a home\u2019s asking price clearly indicates something was miscalculated at the beginning of the sales process. Try to determine the specific reasons why any property is faced with high DOM or price reductions. In addition to structural or design issues, the home may have appraised significantly below its original asking price.<\/p>\n\n\n\n If price reductions have occurred with multiple properties in the market you\u2019re assessing, it\u2019s important to understand the reasons so they can be part of your negotiating strategy. Perhaps more importantly, that understanding can also provide critical insight into whether the area is a viable investment opportunity.<\/p>\n\n\n\n Closing costs paid in part or in full by the seller\u2014also called seller credits<\/a>\u2014are usually part of negotiations for an individual sale. They can reduce the cash required from buyers and the sale price for sellers if the deal includes an arrangement to finance the seller credits into the mortgage package.<\/p>\n\n\n\n But are seller credits common in the local area? This will be shown in detail for closed listings and could enhance your investment position by reducing your cash outlay.<\/p>\n\n\n\n Your local real estate agent can help you determine an appropriate offer based on the fair market value of the subject property and the real estate market. In a seller’s market, you may have no choice but to agree to the home’s price. Sellers expect competitive offers from buyers, often a significant amount over the listing price.<\/p>\n\n\n\n When market conditions are stable, which you will know from conducting a real estate analysis, you have more flexibility when it comes to your offer.<\/p>\n\n\n\n When determining your offer, take into account:<\/p>\n\n\n\n Before rehabbing your new purchase, as with a fix-and-flip<\/a> or BRRRR<\/a>, there are a number of additional considerations to keep in mind.<\/p>\n\n\n\n A good guideline for flipping a property is to keep the purchase price, and rehab costs, at 70%, minus repairs<\/a>, of the after-repair value (ARV)<\/a>. That figure is less important when rehabbing for a rental, where long-term income and cash flow are more important.<\/p>\n\n\n\n Make sure all planned features, amenities, and upgrades are appropriate for the price point, the style of the home, the neighborhood, and the overall housing market. For example, a swimming pool might be common in southern California but probably not in Vermont.<\/p>\n\n\n\n If you\u2019re rehabbing a rental property, keep a renter\u2019s perspective. In other words, \u201cgood enough\u201d may be just fine when it comes to fixtures and finishes. In a home for sale, you would consider more extensive\u2014and expensive\u2014upgrades since buyers are making a longer-term commitment to the home.<\/p>\n\n\n\n Finally, stay focused on upgrades and features that add market value to the property, such as a new kitchen, updated bathrooms, or covered\/garage parking.<\/p>\n\n\n\n We\u2019ve covered a very broad range of topics that help you get to know local economies and their real estate markets. It may be hard to make sense of so many different details and perspectives. <\/p>\n\n\n\n Here\u2019s a practical example of how to put all the information together to use in the real world. You see a report on the U.S. Census\u2019s ranking of the country\u2019s fastest-growing cities. One is a small community in the state where you grew up, so you decide to take a closer look.<\/p>\n\n\n\n The town is a suburb of a larger city with a half-million people, home to a well-known private university. That means there will be a fairly steady pipeline of prospective tenants, either students\u2014perhaps not so desirable\u2014or faculty.<\/p>\n\n\n\n You also discover:<\/p>\n\n\n\n With all this information, you contact a local real estate agent who is handling many of the listings in your prime neighborhood. You ask her about local rent guidelines and the status of a pending environmental ordinance you read about that could begin to impact home sales three months from now.<\/p>\n\n\n\n Based on her information and what you have to invest, you forecast the expected cash flow to be almost exactly the same as your target amount. However, because of the uncertainty of the local environmental ordinance and mortgage rates are expected to drop slightly in the next quarter, you decide to wait and watch developments in the same area for a few more months.<\/p>\n\n\n\n Starting with an understanding of market conditions\u2014and the ability to identify and analyze similar properties\u2014is essential to real estate investment success for real estate investors.<\/p>\n\n\n\n![\"\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/04\/recession-proof.png\" "\\"\\"")
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\n\n\n\nStep 5: Determine the demand in the market<\/h3>\n\n\n\n
Step 6: Select comparable properties<\/h3>\n\n\n\n
New and existing home sales reports<\/h4>\n\n\n\n
Current sales<\/h4>\n\n\n\n
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Days on market<\/h4>\n\n\n\n
Price reductions<\/h4>\n\n\n\n
Seller credits<\/h4>\n\n\n\n
Step 7: Understand the offer<\/h3>\n\n\n\n
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\n\n\n\nAnalyzing a Market Before Rehabbing Properties<\/h2>\n\n\n\n
\n\n\n\nExample of How to Use a Market Analysis<\/h2>\n\n\n\n
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\n\n\n\nConclusion<\/h2>\n\n\n\n
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