I was working in the yard recently, removing the hideous lava rocks that came with the house and replacing them with nice looking stones. This is a mind-numbing job, so I had plenty of time to think while I did it. (Also, apparently lava rocks were free when this house was built because they were about 6 inches deep.)
A neighbor’s house just went up for sale, shattering price records on our street during the super hot market we are currently in. I started to think about the other properties on my block that have sold recently.
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The One With the Big Yard
The day after the offer was accepted on our primary residence, we went to check it out again. It was vacant through foreclosure, so we drove over, parked in the driveway and wandered around. Two houses down, they were having a garage sale, and we walked down to chat with our new neighbors. Turns out they weren’t going to be neighbors for long — they were listing their house a few days later.
The house is a raised ranch, which is not my favorite style of home. But it sits on an unheard of 3/4 acre lot in one of the most desirable parts of my city. And the home is significantly larger than my current house.
If I had known this market, I would have realized what a steal it was and would have made an offer on it, possibly even renting it out for a year to satisfy my owner-occupant requirement of the Homepath property I purchased.
But I didn’t know the market, and I didn’t make an offer on it. It is now worth almost double what it sold for two short years ago. I could easily be renting it out for $1,700 a month and cash flowing at least $500 a month.
The Duplex Next Door
After we moved in, we made friends with the woman who lived in the nearest side of the duplex next door. We casually mentioned how we were looking for rental properties, but never really elaborated.
About 9 months after we moved in, I was driving past her house and noticed a real estate sign in the front yard. I called her and she said, “Oh yeah, the landlord told me he was selling it. I thought of you, but I didn’t know if you were still looking for rentals.” ARGH!
We made an offer on the property based on the current rents. Turns out the current rents were significantly below market. Ridiculously below market. They were renting out for a combined $1,200 a month. After the new owner came in and dropped about $5,000 in updates, each side rents for $1,200 a month.
We ended up losing this property because our offer was $8,000 lower than another offer. That offer was also a cash offer, and we would have had to finance the property. With his rents so low, he was strapped for cash and needed a quick sale.
The current landlord has a line of people waiting to get into the property and could probably raise rents even further.
I’m New — What Should I Do?
I spend a lot of time in the Forums. I see people asking how to get started all the time. I hear myself repeating the same basic advice frequently.
GET TO KNOW YOUR MARKET.
If you want to buy and hold, know the going rate for rentals. Go visit the rentals during their open houses. Look at the amenities offered at the different price points. You can bet your tenants will know this. One of the easiest ways to add value to a rental property is to raise the rent.
If you want to flip houses, know what properties sell for both before and after the flip. How do you know you’re getting a good deal if you don’t know what a good deal is? Every market is different — learn the market you want to be in.
This is something you can do no matter how much money you have, what your credit score it, how new you are to investing or what niche you wish to fill. If you don’t know a good deal when it crawls over and bites your backside, you won’t know to act. And you will find yourself in my shoes, wishing you had done something sooner.
“A year from now, you’ll wish you had started today.” — Karen Lamb
So, How Do I Learn My Market?
Learning a market takes time and research. To know what a property is worth, you have to know what properties like it have sold for recently. And to know what they sold for recently, you have to do your research.
Have your agent set you up to receive automatic emails whenever a house is listed. My MLS gives me the option of getting them as they are listed or a recap once a day. This is one of the best ways to keep up on current asking prices.
Does your MLS offer a preview site as well? My local MLS has a sister site called MySite, where an agent sends all your listings. This site shows you all of the images for the listing, gives you basic information about the property, and allows you to make notes to share with your agent. The best part is, it automatically updates when a property has sold to let you know what it sold for.
Related: The Real Estate Market: How to Analyze and Predict Cycles
Don’t have an agent? Hop on over to www.biggerpockets.com/meet. This link creates a list of people in your local area. Go through and see if any are real estate agents. If there aren’t any agents in your area on the site, connect with some of the people and ask if they can recommend an agent.
Attend a real estate club meeting or a meetup you find on BiggerPockets. Ask those investors for recommendations, too. Do you own your house? Call up the agent who sold it to you and ask them for recommendations.
What are some tips you have for learning your market?
Let me know with a comment!