What criteria do you use to determine the markets that you invest?

Question

I am new investor and would like to pick the brain of folks who invest in real estate.  I am particularly interested in understanding what criteria folks use to identify the the potential markets that they invest in.

Justin Silverio · Answer

A couple factors that I look at are:
- demographics (sex, age, race, marriage status, avg household size, etc)
- sales comps
- median sales of area
- days on market of target price range that my props will sell at
- labor force
- transportation to city
- school districts 
- access to highways
- future economic development

Tony Alvarez · Answer

Welcome to real estate RT. The first thing to remember is that no matter where you are there are people with situations that require them to get rid of their real estate, home or invesment property.  So, there is always a deal to be "created". For the most part average to good deals are found, if you search hard enough.  On the other hand, "GREAT DEALS" are created by knowledable real estate entrepreneurs by massaging the elements of the deal. 
There is a lot to learn about your Target Marget. However, the first thing to verify is- do you presently have a "two tire" market in your area. This simply means that basically the same property is selling at two different price ranges within the same market area. The difference is typically due to the condition of the property itself or the situation and motivation of the present owner/seller, such as Short Sales or REO's. 
However, I would suggest that you start by interviewing yourself and having a good grasp on what you want to do and want you can afford or are prepared to do. This is kind of simple self evaluation ends with identifying what  YOU bring to the table. We all have some strengths and weaknesses understanding them at the outset helps you start to line up others who will fill in the gaps.  
To clearly identify a two tier market you will need access to your local MLS( Multiple Listaing Service) You can accomplish this by either soliciting the help of a local real estate agent ( typically a newer hungerier agent)or by availing yourself of online services that provide information on properties for sale in your area. What you are looking for here is evidence of properties that are selling at a lower price band. Then they are being rehabbed and resold at a higher price point to owner occupants or other investors that like to buy repaired properties, rent and hold as long term rentals. 
There is much info you will need to learn over time, such as many have already mentioned. All of the data in your area is important. From preferred school districts to crime rates, to overall migration. But the first thing to look at is are people presently making money buying fixing renting or reselling real estate in your area. Once you have identified that one thing- Let the competition show you what they are doing. Learn by studying their every move. Some will be very good at what they do and others will make mistakes. Take your time and pay attention. You will learn much like - who are the players in your market, brokers, agents, loan guys, handy men and contractors( just drive by the properties) Take notes and then play "pretend a deal" like paper trading stocks, by using what you are learning to pretend your first deal without risking anythingbut kicking yourself in the pants for not actually doing it for real, should it turn out to be a GREAT deal!  ;-) Then all you need ask yourself is ... 1- HOW CAN YOU DO IT BETTER, FASTER, CHEAPER, or maybe just differently then the others. I hope I have been of help. My back ground in real estate started as a real estate appraiser so I tend to look at things a bit differently. Best of luck. TA.

Bryan Hancock · Answer

The best criterion is investing in a market you know very well.  There is money to be made in all markets if you understand them very well.

I like the Texas primary markets and Austin in general because I understand those markets very well.

Ray Trounday · Answer

Thanks for all the replies.  I am truly humbled by the attention everyone has provided in their responses.  Thanks again!

Brad Z. · Answer

Another factor that I like to look for beyond the statistics is re-development driven by the city or local government etc. Look for small things like roads being repaired, new street signs, well maintained common areas, etc.. Try to locate the meeting minutes form the local council and see what they are focusing on. I have even seen some small cities/townships buying and rehabbing single family houses to resell.

Chris Clothier · Answer

I am assuming you are asking the question for long-term buy and hold?  I talked about a few key things for doing good due diligence at the summit this past weekend.

Economic indicators such as GDP, industry stability and population stats are three keys things that come to mind.  It is not just who the companies are and are they hiring, but what are the industries that drive a local economy and what is there outlook.  I key in on population stats because I do not want to leave my children a portfolio of property in a city that is shrinking today.  I also look at the number of new jobs created over a set period of time which tends to be a much better employment picture than an employment percentage.  A few things that come further down the list for me are actual real estate stats such as DOM or sales price to list price comparisons.  I do look at number of cash sales in a market as this tends to point out if investors are buying in a market or not.

There is a lot more to look at ad 10 different ways to view numbers - just make sure you are crystal clear on why you invest in your chosen market and then take action.

Best of luck

Robert Adams · Answer

I am in the Las Vegas/Henderson market but I like to keep tabs on the available listings to see whether it is increasing monthly or decreasing as this affect the supply of homes. I also like to track the amount of foreclosures monthly to see if it is increasing or decreasing as this will affect the supply and prices. I also like to see how many homes are in escrow as a percentage to those homes available.

For example:
In Las Vegas over the last 6 months available listings have been decreasing month after month. This means the inventory of available homes is decreasing month after month. Even with new foreclosures added in each month the
number has still been shrinking.

Secondly, the amount of foreclosures has also been decreasing month after month. As this number continues to get smaller it in turn makes the number of available listings (our supply) fewer and fewer.

Thirdly, the number of homes in escrow, in pending or contingent status, in relation to the available listings has grown each month for at least the past 8 months.

What I conclude from this is that the market is absorbing the inventory faster than the new listings are becoming available. If these trends continue we will begin to see the Las Vegas / Henderson market really start to improve.

Kevin Kaczmarek · Answer

I enjoy studying demographics as well. Check out "The Great Depression Ahead" by Harry Dent. It will give you some great demographic studies for the next 10 years. In addition, I like job inflow rates, state taxation, and of course comparable sales. Don't go blindly into any market. Work with experienced local investors to determine if the market you are studying is right for you.

Sandy S Harris · Answer

A few things come to mind from the research that I'm doing...job rates, vacancy rates, building permits, and of course sold comps. I'm sure there are many others as well.

Casey S. · Answer

My criteria is anything less than 15 minutes from where I live or work.

It allows you to be informed and involved.

What criteria do you use to determine the markets that you invest?

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