What's a market?

Question

Total beginner question I know, but I can't rap my head around this for some reason.  Is a real-estate market the entire country or the entire state or entire city or how does this work? Are real-estate markets just broken down from country > state > city > area/neighborhood?  I'll hear people talk about cities like the Boston or Atlanta real-estate markets, and then there's also the real-estate market for the entire country of Canada and the U.S.

Joe Villeneuve · Answer

All of the above...and more.  A market, as a continuous string of connected real estate that is similar in property profiles (i.e. bed, bath, sq ftg, etc...) and cost, cash flow, profit, etc...

Now, this market will be obviously mixed in with other properties that are nothing like those described above.  What makes the market is when the majority of the properties are similar.

As far as size goes, the market can be as big as a city, a zip, or as small as a subdivision.

There can be (and usually are) markets within markets...these are micro-markets.

The markets are the most important analysis you will do.  The market decides EVERYTHING you do in real estate investing.  With that in mind I always say, "you don't pick the market, the market picks you".  What this means is you will have a set of buying criteria (these are numbers with $$$$ in front).  The market that matches your criteria, is picking you to invest there.

NEVER choose a market simply because you know it (like where you live).  The fact that you "know it", may be telling you "not to invest here".  Find the market(s) that match your $#####'s, and learn about that market.

Sam Valme · Answer

Hey Account Closed did an awesome job breaking down the basic concept of "markets". The term can be ambiguous but thats due to the art of this industry. There is no one way to define every market. The market becomes defined by the viewer when they see the similarities of an area. More importantly for us as investors, how these similarities can effect home values. Be it positivity or negatively.

As an example. If you have a city that has a large corporation moving into the center. One might say that the (city name here) market is looking good. Because that corporation might bring more jobs etc. But a corporation moving into a city doesn't really impact the US Housing Market as a whole.

However, if there is some major downfall in the US Housing Market because of a new government regulation on mortgages. The talking heads on the TV might say "The US Housing Market is crashing and the world will end in T-minus 10..9..8...". Yet, a city small city market with a booming tech hub doesn't experience the blow as bad. Because their micro-economy is strong enough to withstand those kinds of shifts.

So the next question would be. "Okay, markets are relative. So how do I know what I'm getting myself into?". I would start with your personal criteria. What is it that you are looking to do? Buy and hold? Flip? What is your financing method and budget? Figure out what you want and start looking. Talk to RE pros in the area. Give them what you're looking for. Part of their job is to help you carve out these markets that fit you.

Hope this helps!

Joe Villeneuve · Answer

Here is an example of how to split a market into smaller ones.

There is a city I like to invest in, that has two zips.  Each zip on it's own is a different market because:

1 - The northern zip ARV (for the same bed/bath/size) is about $10-20k less than the southern zip...depending on how far north you go in that zip.2 - The northern zip rents between $100-150 less than the southern zip...again depending on how far north you go.3 - The southwest section of the southern zip rents about $75-100 higher than the northeastern section of the southern zip.4 - The section just north of the Golf Private Golf course, comps out the highest at about $80-100k more than the average ARV in the northern section...and is about 1 mile south of the southern edge of the northern section.

I could break it down even more, but this should give you a better idea of how markets and micro-markets are set.  Oh, and on a map, the city in question is only about 2 miles wide by 6 miles high.

Jimmy Cantave · Answer

Account Closed I will just be brief to keep it simple as possible the way I learned it..just pick a zip code or two and find out what's going on within that zip code...what's selling,who's buying, landlords,fix and flips guys, hedge funds  etc...learn the activity that's going on in a zip code you are in!!!!!

Joe Villeneuve · Answer

If you are thinking that all of Georgia is in the same market because they have the same similarities, you're missing the point.  Look at it a different way then.  Start with a larger market, like the State of Georgia, then break it down into smaller ones based on their "differences".

Account Closed · Answer

Thanks for the interesting answers guys!  I kept hearing about how investing in the closest market was the best thing to do, but it makes sense that if there's nothing that fits your criteria, you're going to look elsewhere.

It's also interesting to hear more and more about what realtors can do for you.  It blows me away that, if I tell them my criteria, they can help me find markets and property that fit my criteria.  It might be small, but to me it's like looking for specific fish in the entire Atlantic ocean and all I have to do is tell them, and BAM I get my fish.  That's just incredible!

@Joe Villeneuve

Just a curious question.  The way I understand it, is that a real-estate market is where most real-estate property are grouped together because of their similarities.  So then most of the property of Georgia are grouped together based of their similarities and their similarities are different than the other states.  What about the entire country's market?  Even though those 2 states are different, they must have similarities with each other if they're part of the U.S. market.  What's that common factor they all share?

Shurrone Jordan · Answer

lot of sense to finish the sentence.

Shurrone Jordan

Shurrone Jordan · Answer

Thanks that example just cleared my head.  I like the way you simplified it and it makes a Thanks,

Shurrone Jordan

What's a market?

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