Knowing your Market — Am I missing something?

8 Replies

Good day PB folks,

As you may have noticed from the title of this post, let's just say as I'm new to the real estate investing world as the come back of the fidget spinners. I am learning everyday, listening to the Money Podcast and the REI Podcast but keep hitting a bump: all the guests repeat over, and over again: "know your market". But what does that mean exactly?

From what I gathered, here’s what to look over:

- Job growth vs. Population growth

.... And to that I ask:

- What would be a good percentage growth to look for?

- I assume that if the job market is dominated by

tech and healthcare (for example) would be considered reliable, are they fields and industries to stay away from?

- Demographics, crime rate, median household income

- Good school districts (isn’t that once you have found a good market?)

- Good public transportation

Am I missing anything major (or minor?) over here? Any feedback/ book recommendations is greatly appreciated!

Have a good day 😊

@Ashley Martin - those are all blanket stats and good to know, but markets are different neighborhood to neighborhood and sometimes block to block. "Knowing your market" to me is walking into a property and being able to decide if you will offer and what you will offer on the top of your head.

It takes much more than googling stats.  

I agree with Brie, but there's a different set of numbers that are the most important ones, that Brie touched on...and you missed entirely.  $$$$$$$.

School Districts, shopping, freeways, etc...are all nice for buyers and renters, but not so useful for investors.  It's not that they're not important, but as an investor, what are you going to do with that information.  Like Brie said, 

"...those are all blanket stats and good to know, but markets are different neighborhood to neighborhood and sometimes block to block."

What you need to find are the Micro-Markets.  The only numbers you use to define those Micro-Markets, are the ones with "$" in front of them...as in Profits and Cash Flow.

School Districts, shopping, etc...matter to those that decide to live there, but that data isn't important to everyone that looks at properties in a market...or at best not all who look at a market, value those numbers equally.  So, how do you know which of those categories you listed are important in the market you are looking at?  Again, the numbers with "$" in front of them.  

The importance of those numbers, in a particular market, can be identified based on what those living there are willing to pay to live there...which, for a REI translates to Profit and/or Cash flow...the numbers with "$" in front of them.

I think this is probably why a lot of REI veterans recommend starting out close to where you live. I know that for me personally, just living in a particular place for a while has given me kind of a "feel" for that area. If it's trending up or down, what kind of people (white collar, blue collar) are moving in versus are moving out and if this has led to either a general trend up or trend down. Has the community has been in support of or against school levies? Does the area have a lot of renters vs. owners and is this changing one way or the other? Maybe even just what kind of reputation a certain city or area within a city has. Some of this is information is readily available but some of it would be a little bit difficult to really find data on and is just something that you have a feel for if you've lived in a particular area for a while.

Originally posted by @Jim S. :

I think this is probably why a lot of REI veterans recommend starting out close to where you live. I know that for me personally, just living in a particular place for a while has given me kind of a "feel" for that area. If it's trending up or down, what kind of people (white collar, blue collar) are moving in versus are moving out and if this has led to either a general trend up or trend down. Has the community has been in support of or against school levies? Does the area have a lot of renters vs. owners and is this changing one way or the other? Maybe even just what kind of reputation a certain city or area within a city has. Some of this is information is readily available but some of it would be a little bit difficult to really find data on and is just something that you have a feel for if you've lived in a particular area for a while.

 Although it may be convenient to invest near where you live, that doesn't make it right.  The reason why that is suggested by many on the surface seems logical, but it isn't smart...at least for some (many) markets.

The reasons why many suggest to invest where you live is because you should know that area well...because you live there.  First, that isn't always accurate...that just because you live there you know that area.  Second, and this is the big one, just because you know that market, doesn't mean it's a good market to invest in.

Although it's very important to know the market you live in, just knowing a market doesn't make it investable.  The original thought process is backwards.  You don't invest in an area because you know it, you invest in an area because it is profitable...and you should then know that are better than the one you live in.

In many cases, that voice you hear from your own market (that you live in), that you hear because you know your market so well, may be telling you NOT to invest there.  Listen to that voice...not the ones telling you to invest in your own area because you know it.

@Joe Villeneuve thank you immensely for this response. I was looking at it from a renter's point of view a little too much and should put my "investing glasses" on when looking at REI in general. I am really interested in multi families, thus looking at it from the renters' perspective. Key words: micro-market research, positively cash flowing properties. Thank you again!

Hello @Brie Schmidt , thank you for your time and response. I agree with you. Having the ability to know what a good deal is and what isn’t might be the greatest

indicator that you know your market. I think my question(s?) was how do I figure out what is an ideal market to invest in (I should have specified I would like to invest in multi families preferably) but you made it clear that is basically case by case, did I understand correctly?

@Ashley Martin - You can use stats like that to identify a market you want to learn more about.  But I would never use it to base a decision on.  It is so much more in depth than that and overall stats in a market of hundreds of thousands of people isn't going to apply in all submarkets of that market.  

To me "Know your market" also means knowing what is sought after. It does no good to get an awesome deal on a piece of property that has zero people that want to rent or buy it. Knowing the roadblocks that will be coming your way. Is the Building code full of things that make renovating impossible? Is the town against rentals and every time you turn around you are going to get a fine? Have there been problems with sewers in certain neighborhoods due to poor design? Did one builder in an area cheap out? Was there a huge lawsuit in the 90's by Erin Brockovich in relation to an underground chemical "river" running through a specific neighborhood (Yup we have that)? Does the historical society in a certain town have a huge issue with ripping down old falling down red barns and fight people in court over it (Leaving the owner with an eyesore and a dangerous item on their property that costs them insurance carriers every year)?  Is the mole population rampant in this neighborhood and you should make sure you plan for treatment every year? Does this neighborhood have brownouts every summer while everyone else has no issues? Are they putting in 400 new apartments which is going to raise supply so high that the monthly rental rate is going to be going down?