How do you select your target market area? This is a question that I am often asked within the blog comments and my goal with this post is to help demystify the process required to do so. It’s best to first take a step back and examine the bigger picture. What are your goals, what sort of housing are you looking to invest in, what areas compliment your exit strategy of choice? Once you have this defined we can move to major market areas.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Major Market Areas:
Break your market up into sections, whether you use cities, zip codes or even individual subdivisions. This will help you to target very specific niches within your local market. Again the boundaries you select should reflect your goals for investing.
Once you have defined the major markets you would like to participate in, we must then define macro variables. These are factors, from a proverbial 10,000 ft view, can help you identify trends and target specific housing product over large areas of the market place. A few of the key macro variables include:
Tax Assessed Value –
We will use tax assessed value as a gauge for what the property is worth. Although tax assessed value does not equate to market value, it serves its purpose in helping to define our target market areas. Perhaps you are looking for properties in a higher end subdivision to flip. Or you may be looking for rental units at or below the median value. You need to adjust accordingly and tax assessed value is the closest we can get without having to comp out individual houses.
Square Footage –
For a given housing unit, what square footage are you comfortable working with? Whether this number is 800 sq ft or 3,000 you need to know the range you are willing to work with.
Number of Beds Baths Garages –
Are you sticking to more conventional numbers for example a 3/2/2 or are you willing to invest in unusual layouts such as a 2/1 that might work as an owner financed property or rental? Whatever your answer factor this into your criteria.
Year Built –
Do you need newer construction post 1990, or are you willing to entertain older properties from 1960 and all the intricacies that come with it?
School Districts –
Are the schools in the area rated exemplary or poor?
Often times you can pull data from the cities local police department or use heat maps provided by various online sources such as Trulia or Zillow.
Once you have established the “big picture” you can begin to target major market areas that suit your needs. You don’t have to stop here however, within these major market areas however you can go back through with a fine tooth comb and further refine your selection.
Exterior Type – Some investors have a preference for example brick homes over frame.
Ratio of Absentee Owners to Owner Occupied – Within the Dallas-Fort Worth metroplex some neighborhoods have become saturated with rental properties. Many land lords I know would prefer to avoid this sort of subdivision makeup if possible. Absentee owner typically indicates the property is a rental whereas an owner occupied property indicates the person living in the home is the current owner of record.
This is especially important if you are a land lord. Often times its a liability to keep a pool and often you will need to budget to fill it in. However, if you are looking for homes to flip a pool might very well be an asset.
A/C Type –
Does a property need to have central head and air for your to consider, or are you willing to consider window units?
Foundation Type –
Are you willing to purchase a home that is on pier and beam, or does it need to be on slab?
Driving Distance –
If you are a land lord this is often an over looked variable, until you start having to commute 45 minutes over the weekend to fix a problem. If you will be personally managing your own rental units, factor in the commute time.
These are just some ideas, there are many other factors you can include (or exclude) to help you with your analysis.
Where do you find this data?
Much of the data touched on in this blog post can be found from your local appraisal district. In addition you can utilize additional sources such as www.zip-codes.com or MLS data if you have access to it. With all of this data combined you can paint and informed picture that will help you invest in areas specific to your needs. In addition, it will help to focus your marketing efforts as well.
Defining your own target market area is really an assessment of your personal needs, no matter your exit strategy. Use some of the ideas in this article to act as a spring board to help identify target markets within your area and feel free to add or remove additional variables as you see fit. Thanks for reading and if you have any comments or questions please leave them in the comments below and I will do my best to address them.
Photo Credit: Ben Freedman