How to analyze a buyers/sellers market

Question

Hello everyone, my name is Blake Ramsey and I am an aerospace engineering student based out of Springfield, Mo. I have been doing a lot of research over the past year preparing myself to buy my first property in the upcoming year, and I just had a question about how to analyze local markets.

I am in Springfield, Mo, and I have been analyzing properties left and right, but I have come across very few properties that can actually meet the 1% rule. I know that is not the only metric that should be taken into account when analyzing a property, but the COC returns, ROI, and Cap rates are all very underwhelming as well.

My question is, I feel like we are in a sellers market here in Springfield, but how can I actually run the numbers and calculate that we are in a buyers/sellers market. I've seen formulas like props for sale / props sold in the last month: <5 its a sellers market, >7 its a buyers market, and in between 5-7 is neutral. Is this a good indication of what kind of market we're in? Are there any resources to help figure this out?

I'd appreciate any input!

George Azita · Answer

Attached, are some images for a breakdown for the first property on your list. I noticed that BP no longer has the ability to enlarge images with you click on them.

I went with very low predictions for this property and much lower than the numbers I use for annual maintenance i.e plumbing, roofing, heating, appliances, yard work, etc and I went with a much lower number for cleaning when a tenant moves and a lower number for the vacancy rate. Personally, I would never look at a property with a rental income of $400 per month since the costs for repairs and cleaning is so expensive it can take several years of rental income to make one repair where collecting $1500 per month can help you to recover in only a few months. I don't look at any properties in any part of the country when the rents are less than $1500 per month and that is why I stay away from the supposed hot markets like in Ohio where college kids in Columbus can rent decent apartments walking distance to the college for $675.

Everyone has their own idea of what a good return on their investment is and maybe I am spoiled and greedy, but my theory is that I prefer to stay from properties when they are not a goldmine and would rather keep my cash on the sideline in a stock trading account so when the market crashes again like it did on March 2020 I can buy stocks with great value for 20 cents on the dollar and if a hot property falls in my lap I can pull the money from my stock trading account and jump on the real estate deal. Otherwise, if I get anxious to buy a property I won't have the cash when either the hot stock or property deal pops up. I did buy a 6-unit for my son in March 2021, but my personal investment capital has been on the sideline and building for about 7 years. But, when I do pull the trigger I will make bank and I won't be stressed out worrying about nickels and dimes.

Blake Ramsey · Answer

@George Azita @Joshua Janus

https://docs.google.com/spread...

Here's a handful of the properties within about 7 miles of me that I was interested in. I recently started organizing them on this spreadsheet.

George Azita · Answer

Here is my version of a breakdown for 3877 SW. Broadway. I went with what I think are more-realistic numbers than I did for 1210 Mount Vernon.

What is interesting about this property is I predict you will earn $104,000 in 10 years if the property appreciates 4% annually, but with no appreciation the next chart indicates that you will earn only $26,000 in 10 years and that is IF you can increase rents $40 per year, but if you don't or can't increase rents you will earn $22,000 with no appreciation. I invested in Idaho about 15 or 20 years ago, predicted that properties would increase about 4% every year and they did not. With housing prices so high today I think you are taking a risk if you predict that properties will increase 4% every year and that is taking a huge risk when 4% hardly keeps up with inflation. The problem is; investors are stuck with a bad investment while the tax collector and every other government agency has the god-given right to increase their fees every year far higher than we investors are allowed to increase our rents.

WITHOUT APPRECIATION

Joshua Janus · Answer

Post a link if one of your properties using a rental calculator. Here are some #'s that I use in my market for properties that are turnkey or close to it.

maintenance: 10%

capex: 5%

vacancy: 3-5%

property management: 10%

Jon Kelly · Answer

@Blake Ramsey I don't think asking Buyers/Sellers market helps you in any way. You can find or create deals in any market. You'll end up doing a lot of research and it doesn't really help you (unless you're a real estate agent).

You're doing the right thing by analyzing properties. How many have you analyzed? If often takes a while to find a good deal.

Andrew Hogan · Answer

@Blake Ramsey cool spread sheet... yikes I see what you mean by a "sellers market" with all those negative cash flow numbers.

George Azita · Answer

Maybe, you should post a full set of the  numbers you crunched for properties so we can see how you came to your conclusions and maybe we compare and help.

Chase Mills · Answer

Blake - Glad to see another person in my local area getting into RE investing. After reading the replies to your post and pulling up your analysis, I think your issue is how you are finding/creating your deals. On market listings are highly competitive between buyers and investors with large sums of capital. I'd start by analyzing your approach to finding deals and the numbers may change. I'd be happy to connect with you if you would like.

Nate Sanow · Answer

I think it’s safe to say most of the nation is in a sellers market right now. What you are wanting to research, to me, would really vary and depend on what year it is in various market cycles.

Blake Ramsey · Answer

@George Azita Wow, this spreadsheet is really in-depth. Did you make it? You have no idea how much I appreciate you putting in the time to analyze these properties! It sounds like you're pretty risk averse, but for someone wanting to get their feet wet with their first deal, would you say these numbers are workable? I know there's the saying of "focus on time in the market, not timing it", but is there a limit to what that quote extends to?

How to analyze a buyers/sellers market

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