One of the first things you should do to start as a real estate investor is to know what is happening in the market. You should know what is happening in your market to adapt your investment strategy to the market. You should treat your real estate investment business as a business. Think about this idea for a moment …
When a new retailer (Walmart, Home Depot, etc.) seeks to open a completely new facility in the area, it will conduct a market investigation in advance. They will do a demographic investigation to see if the store can stay alone before moving on. Similarly, you will have to do some research to make sure you are using the right technologies in your real estate investment business.
Once you know what is happening in the market, you can adjust your strategy accordingly. Depending on what is happening in your area, would seller financing be a good strategy? What about wholesale or lease options? Each of these strategies is more effective under certain market conditions and when you align your strategy with your market conditions, your success will increase significantly.
So, the real key is to know which indicators will provide you with the most useful information.
The main indicators
Jobs: Employment is an important factor that drives the real estate market. In general, people will want to live near their work. Then, as jobs move to the region, this will increase the demand for housing and rentals. If there are not many jobs in the area, you will also see the demand drop. Since the real estate market is controlled by supply and demand, the amount of jobs that arrive in a region gives you a good idea of the demand. You have to know this to know what is happening in your area.
You can get a lot of information about the city plan. They can inform you about new companies that move to the region, the amount of jobs they create and the extent of income for those jobs. This is valuable information you have as a real estate investor.
Occupancy rate: a factor in understanding the demand for rental properties in the area is the occupancy rate. The vacancy is a key factor to discover if rental properties are in demand in your area. This is another perfect example of why you should know your market before investing. If vacancy rates are too high in your area, investing in rental properties may not be your best idea. You will have difficulty finding a tenant. The property will be vacant for a while and will continue to make mortgage payments. That is why it is so important for you to start your investment business knowing your market. This will save you a lot of time and money later.
Real estate management companies are a good place to get occupancy rates. Call them and let them know that you are an investor and that you are considering several properties in the area. They will see you as a potential customer and will usually be happy to provide you with the information you are looking for. Another alternative is to look in the newspaper every week to see the Houses for rent section. Over time, this section will give you an idea of the demand for rentals for your market.
Rental incentives: rental incentives can be an important indicator of the balance between the supply and demand of rental properties. As a general rule, the fewer incentives to lease, the greater the demand for supply. When the offer of real estate rental is greater than the demand, you will see that many owners offer some kind of incentives or promotions. They are trying to give the potential tenant a reason to choose their property over the rest of the competition. Therefore, when you see many rental incentives, this means that the supply of real estate is greater than the demand for rentals. You will see incentives such as a low deposit, a few months of free rent, cash for the purchase of a house or any other offer to enter the property.
The incentives are easy to locate because you are looking for real estate on the Internet, in the newspaper or in any other method you can find. The important part is that you see many incentives. It wouldn’t be just one here or there.
New units allowed: when someone builds a house, they must obtain a city building permit. Your city will have information on the amount of new building permits issued during the past month and last year. Each house built adds to the inventory. Since supply and demand are the two factors that drive the market, construction permits add to the supply.
As an investor, if you see that there are many future jobs (demand) and not too many units allowed (supply), this means that you have found a gap in the market. You can start looking for the development of some land and build new homes to meet your next demand. See how this information can help you get started with your feet and see market opportunities?
The city plan contains information on the number of new units allowed. As you can see, the city plan is a very valuable resource for you as an investor. Most real estate investors ignore the value of what a city plan can offer. It is strongly recommended to spend time with your city planner to find out what happens in your area. You can earn a lot of money using your knowledge of the market and your investment strategy.
Inventory for sale: this indicator indicates the homes currently on the market. We are trying to measure supply and demand in the region. The offer will be the sum of the new units allowed and the existing houses for sale.
Homes for sale are an easy indicator to measure. Any real estate agent with access to the multiple listing service can tell you how many houses are currently for sale in the area. I recommend tracking this monthly and annually. This will help you measure if the action is going up or down.
Average days in the market: the days in the market will tell you how long (on average) it takes to sell houses in the market. This will give you an idea of the activity in your area and how quickly the house will be sold. Market activity affects the balance between supply and demand. Days in the Market (DOM) can help you calculate how long it will take for an order to fulfill the offer and vice versa.
You can also get days on the market from your real estate agent who has multilateral access. Let them know what areas you want to focus on and can provide this information. You should also track this monthly to see the changes taking place in the market.
Now you can use this information to start your real estate investment business. To succeed, you must know what is happening in your area. These key indicators will help you understand the supply and demand of the market. You can also see market opportunities.
If you track these indicators over time, you can also see the changes taking place in the market. Then you can adjust your strategy to adapt to the changing trend. The realization of this research is very profitable, and the difference will occur between an average investor and a large investor.