How to know your market statistically...

Question

I came back from the summit and realized theres so much more I need to know about my market. How do each of you define demand? Are there reports you run with an agent, are there specific stats you pay attention to? anything and everything welcome. How do you define demand for an area to either flip or buy and hold?

Thank you.

Will Barnard · Answer

George Moehlenhoff - Which stats you should know will be strategy dependant. In other words, if you are a flipper, you need to know inventory levels today, 3 months ago, 6 months ago, 1 year ago, etc and of those, you need to know which were distressed sales (REO, short sales, probates) and which were standard sales. You will also want to know how many were funded with loans (and what types) as well as how many all cash. Knowing these helps you better understand where your market is today and where it is likely going. Then you are in a better position to negotiate a price that makes sense for the flip.

As a buy and holder, you want to know vacancy factors, cap rates, loan rates, etc. It is a whole different ballgame.

Bill Gulley · Answer

As mentioned, knowing what is going on in your city/market will help determine expected markets. If you think you are going to establish a price range plotted along a demand curve with a standard deviation and provide an analysis of sample sizes of maybe a "Z" test, knock yourself out because you don't have much to do. It's a subjective gut feeling while being aware of all kinds of economic influences in your market area. But you college kids can have fun with your computers while others are buying and selling....IMO! LOL!!

IMO, your data will not be statistically valid to predict a small real estate market in a city for more than it may require to find, buy, close and sell a property. But I'm sure someone will try!

Michael Quarles · Answer

Total sales
Total MLS sales
Total cash sales
Total investor sales
Total investor cash sales
Total multiple cash investors sales
Total multiple investor sales
Day on market by zip
Median market
Median by zip
Total equity owners by zip
Total nods by zip
Total 119 mortgage late by zip
And the most important in my opinion
Rate of decline or increase for last 30-60-90 days

Account Closed · Answer

Oops, let me re-look on two of those links. Just go to the home page and select your location.
It's still Monday for me.....

Scott Grace · Answer

Good agents\brokers have all the answers! ;)

Levi Goldberg · Answer

I totally agree.

George Moehlenhoff · Answer

Thank you everyone.

@Chris Clothier Your presentation was great.  I think your example in New Orleans really hammered home the importance of Due Dilligence.  GREAT WORK!!!

Chris Clothier · Answer

George -

I think you have some great data points to look at on here, but for me I would include economic stats for an area.  Not just who are the employers, but what are the industries.  Are they dependent on other industries for survival?  I look at market GDP as well as new job openings which is a much better indicator of jobs climate than unemployment rate.  I look at the population growth rate of a market to see if it is trending up or down.  This is all 30,000 foot view stuff, but it helps to narrow a list of potential markets for investing.  I think reading the Business Journal for a particular city can be rally helpful as the articles focus on business climate.  I want to invest and operate in markets that are built to withstand economic downturns.  they tend to be the areas where there is some sense of constant demand and stability.

From there plug in any number of the other responses because they are excellent for data points on the actual real estate market.

Good luck - Chris
From there, you culd

Andy Chu · Answer

Absorption rate is a key factor but ultimately all numbers can be manipulated  to tell a story. First figure out which area you want to work in, and what types of properties. Then simply plot days on market or inventory levels or whatever you wish in a spreadsheet. Do it every day and a trend begins to form.

Oftentimes people get lazy and rely on other people's data but if you focus on single family residences that are built after 1950, who cares what penthouse high rise absorption rate does. It only skews your numbers.

Ray S. · Answer

Hi George for my 2 cents, here's what i think.  I buy 4 or 5 houses a month.  We also rehab.  I dont know if you mean rehab and retail or rehab and hold.

If you plan on retail and you have mls I personally think you have everything you need.  In our mls I can see what the market is doing now and historically.  For example in our area you will see a steady decline in values and other areas are statci and other areas are going up.   So guess where I want to hold houses,  and you can probably figure out where I want to sell houses.

Another thing is to think about whether the neighborhood is foreclosure driven or Retail driven.  Generally I put it into 3 categories.  1-Retail driven- buy, 2-Foreclosure driven- dont buy, 3-Mix- only killer deals.

Another Important factor is Hotness Ratio,  I dont calculate it but I look at how fast the inventory is being consumed in a given neighborhood.  Alll of this is easy to do with mls by pulling up the neighborhood and looking at the status of the listed proeprty.

How to know your market statistically...

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