How to analyze Real Estate markets?

Question

Hi how are you,

I was interested in finding out how one should go about analyzing a local real estate market and gauging whether it's a hot market or on the decline. I know there are so many variables, but I was wondering if anyone could point to an educational resource that provides a sort of systematic way to break it all down. I want to get a bit more detailed than "There's a good school district and it's near a train station." Long term rent/occupancies etc, concrete statistical data.

Thank you

Joe Villeneuve · Answer

First of all, there is no more important analysis in REI than Market Analysis.  Property analysis is a distant 2nd...if it is even on the map.  Why, because if you understand how to analyze markets, you are by default analyzing every property in that market at the same time.  You set the profile of what you are looking for, you find the market(s) that match, and you just wait for the properties to pop up that fit that profile...then go to work.

Second, you are not going to learn anything looking at school districts, train stations, shopping centers, access to roads, etc...  They have nothing to do with REI, but they do have a lot to do with the tenants or buyers you will be turning the properties over to.  Does that sound contradictory?  It isn't.

There is no way for a REI to definitively understand the minds of those that are going to potentially live in your property by looking at the things they are looking at.  You can't read their minds, and every market is different.  Different buyer/tenant profiles in different markets. There is no "one size fits all", so don't bother using those things as your research tools.  Let the buyers/tenants in those markets make those decisions...and then let them tell you.

How do they do this, you ask?  Simple (this isn't rocket science, although many try to make it so).  Let the numbers do the talking for them....the numbers being the consistent "cash flow" and "profits" that are made in the markets in question.  When you find markets with high cash flow/profits (notice I didn't say "property values"), what you have actually found are the buyers/tenants "telling you they like that market".  Do you really care why?

You can find a market with highly rated schools, great freeway access, etc...and there is no profit to be made there...and no cash flow either.  Don't bother with that market.  It's a numbers game, and the numbers that matter to REI's have dollars signs in front...not street names, or store names, or school district ratings behind them.

Numbers don't lie, so don't argue with them...or force them...or rationalize them.  You will lose every time.

Nichole Stohler · Answer

@Shon Butani,  good question and I can relate to where you are coming from -- especially just starting out.   You mention analyzing the local real estate market but I wasn't sure if you meant your market or other local markets to know where to invest?   Also, what types of properties?A few ideas on sources for research can include local real estate investment clubs, universities that conduct real estate research and real estate brokers that work with investors.   I included a post on this relating to multi-family recently if you want to check it out on page 2:

https://www.biggerpockets.com/forums/12/topics/455...