Exploring and Market analysis

[AJ Felix]

As I have been reading once important topic I came across that is critical to investing is learning your market. I am still unclear of what one needs to learn, how to learn, and what resources are used to learn the markets; any software to assist?

[Joe Villeneuve]

Originally posted by @AJ Felix:

@Joe Villeneuve Understood, but how do I find out if the market will generate cash flow, how do I find the cost to enter the market, what tools are available that would allow me to choose a market in my area of interest and analyze details, zip codes that support what my strategy and niche?  I just do not understand the process to acutally learn where to concentrate efforts. Do I just google best place to invest, you understand where I am going?

As an example, I want to be a single family buy and hold investor and start locally. I understand the general process but do I just pick a house and get a deal? How do I know if it is in a good area, low crime, appreciating, increasing population growth, affordability, job growth, etc? And yes, I would have these and my criteria defined prior to pursuing the deals.

 You're making this more complex than it needs to be...and many do.  It's a simple math problem, that you will see over complicated with rationalizations when the simple math doesn't validate a property as being a good deal. 

It comes down to your money's Entrance and Exit..and the Exit should be accompanied by friends (your money's friends), as in "profit" and/or "cash flow".  The Entrance is defined as your cost...not the total cost of the property...just YOUR cost.

Here's your basic math problems:

1a - Exit Strategy #1a:  Cash Flow
Goal = Positive Cash Flow
Entrance = Out of pocket cost (this should be restricted to your down payment) + rehab cost (if this isn't rolled into any financing)
Carrying costs = Monthly expenses that you have to pay (insurance, property taxes, mortgage, property manager, etc...)
Income = Rent (can be other additional items, but we'll keep it simple for now)
Formula =>  Income - Carrying costs = Cash Flow

1b - Exit Strategy #1b: Turning CF into true profit
Goal = Using Positive Cash Flow to recover all YOUR Costs
Entrance = Out of pocket cost (this should be restricted to your down payment) + rehab cost (if this isn't rolled into any financing)
Profit = In this case, that would be your positive cash flow per year
Formula => Entrance   =   # of year it takes to recover your cost...and start making a true profit  
                  CF/year

2 - Exit Strategy #2: Flip Profit
Goal = Profit from Flipping
Entrance = Out of pocket cost to buy + rehab cost + any other closing costs...etc...
Closing Costs = Commissions, fees, etc...
Sale Price = What you sell the property for
Profit = Walk Away money
Formula => Sale Price - Entrance - Closing costs =Profit