What does it mean to "know your market"

7 Replies

I am still having trouble with understanding the concept knowing my market. By market do you mean the area that I'm focusing on? The city as a whole or just the neighborhood I'm in? I know how to find comps but I am not sure how to apply these numbers. As an investor what do you want to know when someone brings a deal to the table? 

Hi Jacob,

I understand the confusion since I am relatively new at this too.  I take "knowing your market" to mean that you have a good ballpark idea what properties are usually worth in the area that you want to invest.  For me, I have several specific neighborhoods that I look at, and just yesterday found a property listed that I know is around $10-15k below market value for that area.  Today, I'm trying to figure out if there is anything wrong with that house or if there is just a motivated seller.

If you are planning on investing all around a city, then I think that you would have to know that city.  If you are like me and there are only a few neighborhoods that interest you then you need to know those areas.  As I'm sure you are aware there can big fluctuations throughout the city.

That is my (limited) experience.  I've only bought one rental so far, but I'm hoping to add another by the end of the year.  Perhaps wiser people will comment on this thread now. :)

@Jacob Stuckey

I would add to that, knowing the economic factors driving the city. From there you may be able to identify the path of progress, up and coming areas or areas that are going through gentrification. Then you can focus in on areas that have great potential for growth. 

Location, location, location applies to renters and buyers. Find the best location you can afford and work that area for the best deals.

I work the question from the other end - - the CLIENT I want to serve.  

  • who are they and what to they want or need that I can supply?
  • where can I find them {State, City, neighborhood}?
  • what kinds of jobs to they have?
  • where to they live? {SFRs, MFUs, Townhouses, Apts, High rises}

Starting from the client/customer/tenant, gives me insight as to the obvious things NOT to do, eg invest in class A gated communities when the tenant may be a blue collar worker, has a family with kids and needs easy access to shopping, schools and in Calif, access to freeways/hiways.

Of course Location and the deal get into the equation, but avoiding 'swamp land and war zones' is fundamental and a pre-requisite to either, at least for me.

Know the Comps AND their varying rent returns as a percentage of your potential investment. eg. Some areas might typically return a gross of 1.5% purchase price per month. Some other areas: 1% (and so on). Take the time to work out: WHY the variations? 

Then decide: what determines YOUR risk-tolerance? All the best...

@Jacob Stuckey

The other part of knowing your market is that it can dictate your strategy. The economy should drive your strategy as well as your location and target client. If your in a high appreciation area with low/no cashflow you might want to do flips or brrrr. Looks like your in Ohio so I think you likely have a great cashflow market with limited appreciation. That makes for a great long term buy and hold area. 

Not to say you can't run any strategy in any market because you very well could, but some strategies work better when matched to the market trends. Not shiny object syndrome, smart analysis of the market and application of the appropriate strategy. 

It means to know your area, and which properties are worth the most and where. Knowing where the best areas to buy are and for what prices. 

Knowing how your criteria fits into your area.

Ok now it's starting to make sense, and I have something to refer back too. This was very helpful, much more than I thought I'd get out of this post!

Thanks guys!

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