![\"graphic](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Market-Analysis-Blog-Image-2-1024x576.png\" "\\"\\"")
<\/figure>\n\n\n\nFind and fund incredible deals\u2014even in a tough market.<\/strong><\/p>\n\n\n\n In Real Estate Deal Maker<\/em>, On the Market <\/em>podcast co-host Henry Washington shows you how to close on incredible deals, expand your network, and supercharge your approach to investing. Learn from his experience with 130+ rental properties and take your deal-making skills to the next level!<\/p>\n\n\n\n
Purchasing a property in just any market cannot satisfy these income requirements. This is why market analysis<\/a> is critical. <\/p>\n\n\n\n Here are the steps in market analysis.<\/p>\n\n\n\n Location selection is the first and most important step because it defines all long-term income characteristics. <\/p>\n\n\n\n What would be the difference between buying in low-appreciating versus high-appreciating markets?<\/p>\n\n\n\n People often choose a location based on cost, cash flow<\/a>, or ROI<\/a>. However, cash flow and ROI metrics only predict a property’s performance under ideal conditions on the first day of a long-term hold. You need to take a much longer view than just the first day.<\/p>\n\n\n\n To illustrate this point, I will compare one property in a high appreciation and rent growth location like Las Vegas to a typical low appreciation and rent growth city.<\/p>\n\n\n\n Suppose you buy an investment property in Las Vegas for $400,000 with a rent of $2,200 per month. You also buy two $200,000 properties in a low-priced city that rent for $1,100 per month each.<\/p>\n\n\n\n Rents for the property segment we target in Las Vegas increased on average by over 8% a year between 2013 and 2023, so I will use 8% rent growth in the example. For the slow rent growth city, I will assume rents increase by 3% a year, which is high for most low-cost cities.<\/p>\n\n\n\n If we assume an inflation rate of 4% a year, what will be the inflation-adjusted monthly income from the properties after five, 10, and 15 years if the same inflation and rent growth continue?<\/p>\n\n\n\n Because rents increased faster than inflation, your buying power and the amount of goods and services you can buy increased yearly.<\/p>\n\n\n\n Note: For simplicity, I combined the income from the two properties ($1,100\/month x 2 = $2,200\/month).<\/em><\/p>\n\n\n\n Because rent didn’t keep pace with inflation, your purchasing power, which is the quantity of goods and services you can buy, decreased annually.<\/p>\n\n\n\n You can never be financially independent if you buy properties in locations where rents do not outpace inflation.<\/p>\n\n\n\n Another problem with low appreciation and rent growth cities is that most people will need to purchase multiple properties to meet their financial goals. A drawback of low-cost locations is that acquiring multiple properties requires much more capital than in high-growth\/higher-cost locations. <\/p>\n\n\n\n I will show why this is the case by comparing properties in two locations. I will start by estimating how many properties you will need to purchase.<\/p>\n\n\n\n For example, if you need $5,000 per month to maintain your standard of living and each property generates $350 per month, you will need to buy 15 properties ($5,000 \/ $350).<\/p>\n\n\n\n Suppose I assume that each property in a low-cost, low-appreciation location costs $200,000, and your only acquisition cost is a 25% down payment. How much capital from your savings will you need to purchase 15 properties?<\/p>\n\n\n\n 15 x $200,000 x 25% = $750,000, a lot of after-tax dollars.<\/em><\/p>\n\n\n\n What if you invested in a higher-cost, higher-appreciation location instead of a low-appreciation location?<\/p>\n\n\n\n I assume each property costs $400,000, and the appreciation rate is 10% annually. (Note: The average appreciation rate in Las Vegas for the property segment we\u2019ve targeted was greater than 15% annually<\/a> between 2013 and 2023.) Also, like the previous example, I will assume that the only acquisition cost is the 25% down payment.<\/p>\n\n\n\n The cash from savings to acquire the first property:<\/p>\n\n\n\n![\"steps](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Market-Analysis-Blog-Image-1-1024x576.png\" "\\"\\"")
<\/figure>\n\n\n\nComparing Location Financial Performance<\/h2>\n\n\n\n
High rent growth city<\/h3>\n\n\n\n
\n
Low-rent growth city<\/h3>\n\n\n\n
\n
How Much Capital You Need to Reach Your Goal<\/h2>\n\n\n\n
![\"real](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/REDM_Cover.jpg\" "\\"\\"")
\n <\/div>\n <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"