Analyzing a market

11 Replies

Hi everyone,

I am looking all around CT trying to find a market to buy and hold that cash flows. I am now looking into Middletown, CT it's a small town but it has both Wesleyan University and Middlesex Hospital which I like because they are both recession resistant. My question is since it's small it's hard to do a lot of the research that people talk about. I'm trying to figure out the acquisition price / rent ratio and nailing down rents is really hard! There are only 2 to 3 ads on craigslist and any one time and when I look at properties that are for sale on the MLS the rents stated are all over the board! I made a spreadsheet showing 15 properties and am finding little rhyme or reason. In one neighborhood two comps that feel very comparable will have a 2 bdr for $1,200 and then across the street will be a 2 bdr for $850! That difference is make or break as far as cash flow goes as you can imagine. I asked a realtor who has lived there his whole life and he said 1bdr $900 range 2 bdr $1,100 range. Seems too good to be true to assume the cheaper ones are under market. Any other ideas on how I can get a tighter range? Thanks so much

If you have some photos of the property you can post a ad on craigslist like you are trying to rent it and then see how many responses come in at a certain price.

If you don't get any responses or not enough to feel safe then the rent would be too high. If you get more responses then you can handle then the rent is too low.

Also, what is the average salary for that area?
if your renter criteria for salary is 3x rent then that will give you an idea of where you could be.

Market analysis is the most important of all three types of analysis (Market, Rehab, and Property) because it dictates the other two.

Simply using a two bedroom isn't enough.  What are the sq ftgs?  What are the location specific to the property you are analyzing?  There are micro-markets within larger markets.  You can have a series of micro-markets within the same zipcode, all within a mile or less of eachother.

I ended up designing software to analyze it for me (which started as just a form) so I could break down all the different micro-markets. It made an enormous difference.

The criteria a use are:

1 -Within 1 mile of the property I'm analyzing 
2 - ...In the same city...even if a potential comp is across the street, if it's not in the same city you can't use it
3 - Within 10% (high or low) of the property in question
4 - Condition of the comps compared to the property I'm analyzing.

I would suggest you take a look at rentometer.com  Just don't refer to the gauge as a guide...use the candlesticks on the map.  You can see micro-markets on the map. 

Have you considered Enfield Ct?  Lots of commuters into Springfield MA.  Springfield has great job opportunities but the schools suck and there are a lot of ware zones so people go one town south for a better situation.  It's also only 20 minutes from Hartford so it's ideal if one member of a couple works in Hartford and the other in Springfield

@Kim Handelman  I own a few units in Middletown and know the market very well. I am getting $900 per month for 1 bedroom/1 bath units, and $1100 per month for a 1 bedroom loft unit. Downtown near the college, rents are even higher, a $1200 a month rent is certainly market rent.

There is a lot of inventory that has been updated which is able to fetch higher rents ($1100-$1400 per month) and older inventory that needs updating, but is still able to charge $750-$850 per month.

If you make the apartments look nice then you will get a higher rent, if the apartments are dated then you will get a lower rent.

I would make sure that the school system (K-12) is at least okay if not desirable, then people will move into the city/town.  With a one or 2 bedroom it might not be as important but when you go to a 3-4 bedroom, you will have kids involved.  They parents will pay a little more to get into a town with a more desirable school system.

I personally would try to stick to the towns around me that I am more familiar with because you don't want to be the one who bought a property that no one else wanted.

Tom

@Thomas Guertin @Jason Hatfield @Phillip Richardson @Joe Villeneuve @Austin Youmans G-d I love this site! Thank you all so much! So much great advice here. Jason, you're the second person who has mentioned Enfield. I live on the shoreline so Enfield is an hour and a half away but you make a good case for it. As for sticking to towns I know the shoreline is difficult to buy and hold. Pricey and difficult to even get the 1% rule. Middletown is a half hour away and at price points I can handle and with some of the input here, I think I can make it cash flow. THANKS AGAIN!

You don't pick your market, the market picks you.  You can't force a market just because it's close to you...if it stinks, it stinks, and no rationalization of numbers will fix it.

The numbers don't lie...so don't argue with them...you lose every time.

If you need to go outside your immediate area than I would spend the next 6 months looking at every single house that goes up for sale in the couple towns you chose and try to understand why their priced the way they are.  Also, get a realtor that knows that particular area well.

I have a realtor that I use that is great for the town he is in and surrounding communities but for the town I grew up in, which is only 20 minutes away, he doesn't know the market as well.

I would also check out the rentals as well so you can understand why they priced it the way they did.  Some are investors that understand how to make a profit and others have inherited property and they try to be landlord/investors without knowing the numbers.  This could be why you see some prices really lower.

Tom

Originally posted by @Joe Villeneuve :

You don't pick your market, the market picks you.  You can't force a market just because it's close to you...if it stinks, it stinks, and no rationalization of numbers will fix it.

The numbers don't lie...so don't argue with them...you lose every time.

 VERY well said Joe!

Originally posted by @Thomas Guertin :

If you need to go outside your immediate area than I would spend the next 6 months looking at every single house that goes up for sale in the couple towns you chose and try to understand why their priced the way they are.  Also, get a realtor that knows that particular area well.

I have a realtor that I use that is great for the town he is in and surrounding communities but for the town I grew up in, which is only 20 minutes away, he doesn't know the market as well.

I would also check out the rentals as well so you can understand why they priced it the way they did.  Some are investors that understand how to make a profit and others have inherited property and they try to be landlord/investors without knowing the numbers.  This could be why you see some prices really lower.

Tom

Good advice Tom! I live in a very unique area being that my home is in MD but I'm 1 mile from PA and 7 miles to DE. Actually only 10 minutes to University of DE in Newark DE. I have a great realtor who grew up in Newark,DE and knows all of the sub markers well but go 15 miles north across the PA border to Kennett Square PA and he is lost. So I found a good realtor who grew up in and lives in Kennett Square. He can help me determine ARV and decide if this block is good for BRRR or better to flip, etc. Same story though in that if I asked him for help in North Wilmington, DE which is only 10 miles south east of his market then he is clueless. Go 20 minutes south of me to to the military base in Aberdeen, MD and neither would know their *** from their elbow!

Originally posted by @Kim Handelman :

@Thomas Guertin @Jason Hatfield@Phillip Richardson @Joe Villeneuve @Austin Youmans G-d I love this site! Thank you all so much! So much great advice here. Jason, you're the second person who has mentioned Enfield. I live on the shoreline so Enfield is an hour and a half away but you make a good case for it. As for sticking to towns I know the shoreline is difficult to buy and hold. Pricey and difficult to even get the 1% rule. Middletown is a half hour away and at price points I can handle and with some of the input here, I think I can make it cash flow. THANKS AGAIN!

Thanks Kim. Another GREAT argument for Enfield as a suburb of Springfield is that Springfield just broke ground on the $800 Million MGM RESORT CASINO set to open in 2017. Thank you former Governor Deval Patrick for literally putting ALL your eggs in the gaming basket! If I had boots on the ground there I would be buying up rentals within a 15 mile radius as fast as possible. I'm actually planning a trip back up there in August to look at some properties and explore some JV. Let me know if you see something there you might want to partner on. I would LOVE to buy, buy, buy in Enfield but I don't currently have the local partners. I guess I should have drank less and networked more when I lived there and went to UCONN :)-