How do I Preform Proper Market Research?

Question

After taking sometime to understand the real estate investing landscape, I feel confident in starting out at looking for multifamily properties that I can house hack or use the BRRRR strategy to accelerate my growth in the business. However I am currently trying to do some Market Research in order to focus down on a few zip codes were I can start marketing and grow a niche. I am located in Connecticut were the two big cities are New Haven and Hartford. Any advice on what to look for when conducting market research to see what area are the best to find the investment proprieties? I know that focusing is the best method to find deals but I am struggling on which areas or zip codes to focus on. Any advice would be greatly appreciated!

Vaughn Smith · Answer

@Marwane Taroua you may want to start with websites like neighborhood scout or city data. In addition partner with a Realtor for sales and rental comps and become familiar with the U.S. Census website, its surprisingly easy to use and has all types of useful data.

Michael Lee · Answer

Hello and welcome to this site Marwane! I've got a few things you should consider doing.  The first thing I recommend is to do your research at the city or county you are looking to locate a new property.  The next thing I recommend is the more units, the better.  The main thing is the effect on a percentage number when a vacancy occurs.  I understand that you think you have to start out with a single family home which only one unit or a duplex (1 or 2 units)  can really hurt you with a vacancy.  Many multifamily projects are owned by individuals that may provide you with financing.  Show them on paper how much more they could make and how they can spread out any tax liability over the life of the loan balance.

The next item will say that you need to contact Real Estate Agent(s) that is experienced in that area and has worked with people that did what you wanna do.  My next recommendation is to contact an experienced building inspector and find out their busiest areas and what you could expect from them.  You could also contact one of the Chamber of Commerce to get their help for where you should locate and if he was aware of any future development that might effect you.

You could also speak to area property managers and see if they have any negative comments.  That subject area's retail development.  Do they target the people that are like what you want.  I would also look at its access and paring.  Are there any amenities nearby?  Does it now or could you do a renovation to the exterior that would make a good first impression?  Good luck to you!

Joe Villeneuve · Answer

This is so important, I developed software to do this for me.

What you are looking for are the micro-markets, within the larger ones.  Think of it like a thunderstorm...somewhere, across the street, it isn't raining.  Micro-markets are just like that...and like a thunderstorm, they can move.

There are 3 "comps" you have to analyze to find these Micro-markets.  One entry, and two exit.  The Steps:

1 - Entry:  For Sale Comps.  This is your "opportunity cost" to get into the market.

2 - Exit #1:  Sold Comps.  This is one of the two exits...for your money.

3 - Exit #2:  Rental Comps.  This is the other exit for your money.

4 - Take the Cost to Enter and subtract it from the Exit Comp of choice.  If the number is positive, and there are a number of them in a congested area, you found a micro-market for that "exit".  If there aren't a lot of them, or they are very inconsistent, you found the micro-market others will try to sell to you...and if you buy, you will be asking yourself, "why this property doesn't work".

Find the right Micro-Market(s), and you will find your next property.  If you lose a deal, don't worry..the next one (the same one) will pop up...literally around the corner...it will just have a different address.

Marwane Taroua · Answer

Thank you so much for the advice! I will try to break down my research as such and see what markets will fit the criteria.

Shella Stephens · Answer

Great post. Thank you for asking this question.   I needed answers too. 😊

How do I Preform Proper Market Research?

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