What Tools Do You Use For Market Research
Hello All,
What tools do you guys use when researching/analyzing a potential market?
#5 Market Trends & Data Contributor
- Investor
- Miami Beach, FL
Websites like Zillow, Realtor.com, and Redfin offer valuable insights into market trends, median prices, rent estimates, and historical price data. They're accessible and provide a good starting point for market research others in social media.
You can also use neighborhood scout, AirDna, Property Radar.
Zillow and Rent Cast are good for looking at Rent comps and BP has a rent calculator as well.
Google search some local site in the areas you're searching too. For example in the Reno Tahoe, NV area Addressincome.com has some great rent maps and other tools for investors.
Hello @Antonio Waller,
There are data sources for everything you need. However, most are not online. Also, before you start researching, first decide on your financial goal. For most people, the goal is financial freedom. Financial freedom is not just replacing your current income. Financial freedom requires maintaining your current lifestyle for the rest of your life. Financial freedom requires a passive income that meets three requirements:
- Your income outpaces inflation: Inflation continually erodes the purchasing power of a fixed amount of money. What you can purchase today for $100 will require $155 in 10 years if the inflation rate is 5%. The only way to sustain your current lifestyle is if rents rise faster than inflation. This is determined by the location.
- Persistent: You can not outlive your income. This requires continual and significant job creation. This is determined by the location.
- Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation. This is determined by the location, the tenant segment you target and the companies they work for.
In the rest of this post, I will explain how to select the investment location, tenant segment, and property, as well as the information needed and the sources.
Selecting an Investment Location or City
The investment location is your most crucial investment decision, not the property itself. The location defines all long-term income characteristics, including whether your rents keep pace with inflation, the total capital required to acquire sufficient properties to maintain your standard of living, and how long your income will last.
There is a straightforward location selection process. Start with an initial list of candidate cities and eliminate all cities that fail additional requirements. The result will be a short list of potential investment locations for further consideration.
- Cities with a metro population >1M: Small towns may rely too much on a single business or market segment. Source: Wikipedia
- Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy, so there is little demand for rentals, so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth outpaces inflation. Never invest in any location with a static or declining population. Source: Wikipedia
- Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high-crime cities. Never invest in any city on this list: Mapped: The Most Dangerous Cities in the U.S.
- Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control. Source: Google search.
- Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs for investors are property taxes and insurance. Operating costs vary significantly by state; only invest in states with low operating costs. Source: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.
Tenant Segment Selection
Properties do not generate income; it's the tenants that pay the rent. If you rely on this rental income, it needs to be reliable. Reliable income comes from tenants who stay for many years, pay rent even during economic downturns, and maintain the property well. However, such reliable tenants are the exception rather than the norm. How do you maximize the odds of always having a reliable tenant in your property?
Begin by identifying a tenant segment with a high concentration of reliable individuals. How do you identify such a segment? There is no database or online source of this information. You can only obtain this information through property manager interviews.
Simplistically, ask multiple property managers the same question. “What would you buy if you wanted tenants who stayed many years, always paid the rent on schedule, and take good care of the property?” This is what I did. In my case, seven or eight out of the ten property managers I asked described the same properties. Once I knew the property type, configuration, location and rent range, I developed what I call a property profile. A property profile is a physical description of the properties you want to buy. A property profile has at least the following factors.
- Property type: Single-family, multi-family, condo, townhouse, etc.
- Configuration: One bedroom, three bedroom, one story, two-story, lot size, age range, garage size, etc.
- Location: Where the tenant segment is renting today.
- Rent range: How much is this segment willing and able to pay.
Notice that I did not select any aspect of the property. I determined the property characteristics that attract the segment with the behaviors necessary for a reliable income. Then, I bought similar properties. If you follow dogma on websites about the “best” property to buy, you are unlikely to get reliable tenants because each location is different.
Once you know the property profile for the properties you want to buy for a reliable income, it is time to select the properties.
Property Selection
In addition to conforming to the property profile you created based on income reliability, there are additional considerations, as illustrated below.
The rent is the critical factor. Knowing the rent, you work backwards to a purchase price. Where can you get rent information? There are no reliable online sources for estimating rent for a specific property. For example, below is a photo of a boarded-up fire-damaged property in poor condition.
The popular site for a rental estimates I checked predicted the rent as $2,199/Mo. The reason the rent estimate makes no sense is that such sites estimate rents (and prices) based on area averages, not a specific property. However, you will not buy an “area average” property; you will buy a specific property in a specific condition. In summary, general information does not apply to specific properties. Online sites have little or no value due to gross inaccuracies.
An experienced local investment team is the only source for the *specific* property information you need. They possess all the resources necessary to provide the information you need to make an informed decision. And, rental information must come from a skilled property manager.
The problem is that many estimate rent based on recent similar rentals. This is not valid. When people look for a place to rent, they compare what is available at that time and choose what, in their opinion, is the best option for them. What a property rent for recently has no relevance to a potential renter. The choose from what is available today. Also, they do not just look at the property down the street from yours, they may be comparing your property with a property across town. See the illustration below. To someone works in a central job location, housing areas 1, 2, and 3 are the same.
Only an experienced property manager can provide the information you need; there is no database or online source.
Where Is the Data?
I consolidated the information sources below. Reach out if you have questions.
Location Selection:
- Cities with a population >1M. Source: Wikipedia
- Sustained and significant population growth. Source: Wikipedia
- Low crime. Source: Mapped: The Most Dangerous Cities in the U.S.
- Rent control. Source: Mapped: Source: Google search
- Low operating cost. Source: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.
Tenant Segment Selection:
- Tenant segment with a high concentration of reliable people. Source: Interview multiple local property managers.
Property Selection:
All information must come experienced investment team members, there is no other source. Below are the primary sources for each information item.
- Property value and offer price: experienced agent
- Rent range and time to rent: property manager
- Renovation item list: property manager
- Renovation cost: renovation company the team works with
Antonio, reach out if you have questions.
Hey Antonio,
It depends on what type of real estate investing do you do? Buy and hold? Flipping? House Hacking?
Some tools I use:
MBS Highway has an interesting appreciation predictor that so far as some accuracy to it. This is something you pay for.
Zillow: For rentals, it shows how many days on market, contacts, and even applications. This gives you some insight into demand in a certain market and helps with pricing.
HowMoneyWalks.com: Tracks IRS data on where people are moving to and from. I'm not sure how up to date it is but gives you some idea.
Facebook Groups: I will join rental Facebook groups in various markets to see what people are looking for in a rental and who typically is looking. I've even asked about neighborhoods before and people are willing to provide feedback.
Realtors: If you have a decent investor friendly Realtor, they will tell you honest feedback on an area because they know it is a long term relationship.
Property Managers: Same reason as the above. I learned when I invested out of state that many PMs wouldn't manage some properties I was interested in pursuing. I found out later it was because the area had so much crime that they didn't want anything to do with it.
Quote from @Antonio Waller:
Hello All,
What tools do you guys use when researching/analyzing a potential market?
There's a variety of ways to get a deal in front of you (I'm mostly a flipper), but basically if it looks promising, I run custom comps queries and check the current & past $/sf of renovated/distressed product in that city or zipcode.
Here's a chart on 90066 I generated from my tool under Market Stats > Sales Data > Specific Zip Code:
- My above chart (more available) shows the Avg Renovated $/sf (High) over time in this Zip Code, something completely different than charts/providers based on Averages/Medians only, like every other platform (RedFin Below, https://www.redfin.com/news/data-center/):
- Can't select smaller locations such as City or Zipcode for their $/sf data, so it's useless helping me underwrite/verify a deal.
- Can set Zip Code for Median Sale Price data, but again it's the median/avg so it's useless helping me underwrite/verify a deal.
Then if that looks decent, I'll run Sales Comps, and get a quick summary of some key metrics based on those comps. Take this 💥just-closed renovated property for example💥:
With my query of "22757 Charlemont Pl, Woodland Hills, CA 91364 5/4/2400-3050,0.6,300" we get an ARV Estimate that is ~4% off, and I picked this at random just scrolling through recently closed in my area
And the Market Stats $/sf of renovated property in that Zip Code matches up pretty well, so I know the ARV estimate is realistic:
You can also run Agent Stats to find/get in touch with the real top-agents in that area so you can triple-verify everything and/or list it with them when you are done.
With the above, I am able to quickly vet every new deal that comes my way and spend more time on the good ones. Without these tools, you'd have to do a lot of manual data collection and copy/pasting of comps/data into a spreadsheet for every property you analyze, was kinda the reason for building this out.