Real estate market trends typically echo the current state of the housing industry. Trends are, after all, typically the direct result of recent events that have transpired in a particular region. As a result, real estate market trends have become an invaluable tool for investors looking to analyze a deal. It is not enough for investors to simply notice trends, however; they also need to be able to translate them in a way that is conducive to running a successful business.
Paying close attention to the real estate market is important because it identifies helpful trends; trends that, if accounted for properly, could swing the potential of an investment in favor of its respective investor. The real estate market has a lot of valuable information for those that are willing to listen, which begs the question: How can you possibly glean everything you need from a particular market before investing in it? What steps can you take to give yourself every advantage possible before committing to an investment? The answer is simple: conduct a thorough market analysis that accounts for everything from real estate market trends to exit strategies and location.
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In order to invest in real estate competently, one must have at least a basic understanding of the market they intend to buy in and the trends they can expect to see. If for nothing else, the market in which the property is located will have a lasting impact on the asset’s current and future performance. It is fair to assume that the more one knows about the market they are investing in, the better their chances of realizing a successful deal are.
To get started with your in-depth market analysis, review the following list of steps you’ll need to follow to conduct an analysis of your own:
The golden rule of real estate still applies: location, location, location. The area in which an asset is located is just as important as the property itself—if not more so. No factor, for that matter, influences a property’s true value more than where it is located. Investors need to pay special considerations to a home’s location for two very important reasons: For starters, they need to conduct a market analysis to determine the deal’s viability. Second, the asset should be in an area that exhibits at least some level of attraction. After all, real estate investors rely heavily on demand.
One of the best ways to determine whether or not buyers will find your home desirable is to assess the area around it. Remember, there isn’t a single home’s worth that isn’t affected by its physical location and proximity to amenities. Keep an eye out for real estate market trends that will increase demand for your particular property. For example, a house within close proximity to public transportation, good schools, hospitals, and a number of other public amenities will be in higher demand than those that aren’t. And what is demand, if not for the driving force behind setting a more attractive price point?
Once you are confident the area you intend to invest in is worth your time, the next thing you’ll want to do is assess the data. Otherwise known as “running the numbers,” assessing the data on a particular property will have investors scrutinize each and every financially relevant data point. How much does the property cost? How much will need to be spent on the ensuing rehab? What’s the after repair value (ARV) of the subject property? What direction have appreciation rates been heading? The answers to these questions, and many more just like them, will help investors paint a clearer picture of what to expect from an impending deal. It is worth noting, however, that these numbers need to be compared to their comps in order to be relevant.
It is at this point that investors will want to make sure the deal is financially viable. First and foremost, the numbers need to make sense in order to follow through with a deal. Mind due diligence and check data on the subject property and its comps—both past and present. You’ll want to know how much similar homes have traditionally sold for, and what their current price points are. Comps are nothing, if not an investor’s best friend. Comparable sales will provide you with most of the data you need, from what you can expect the home to sell for and how much demand is likely in the market.
Remember, you are conducting a market analysis to determine whether or not the subject property you are looking at is a viable option; the data needs to support any reason you may have to purchase it. Use comps to pull necessary data, and compare them to your own subject property—only then will you be able to move onto the next step.
Let’s not forget about the property’s physical attributes; after all, they are eventually going to play an important role in any impending deal you have in mind. No market analysis is complete without evaluating the property on its own merits. Any buyer looking to invest in a property should take major characteristics that determine whether the investment property is worth the money or not into consideration.
For example, does the home present buyers with a reason to buy it at a certain price point? Provided you already determined the ARV, it’s up to you to determine whether or not the home’s physical attributes justify its selling price. If the home’s amenities are in line with the price point, you may have a deal on your hands. If not, you may need to look elsewhere, or get creative with your rehab to offset any differences. In other words, the property needs to meet certain criteria in order to be sold at the ARV you previously calculated. Does your prospective home have everything it needs? Pay attention to current real estate trends to make sure it has everything it needs to sell; if not, you may need to add them to the rehab budget.
More often than not, the property dictates the exit strategy—not the other way around. While investors can certainly look for properties that would be better to wholesale or rehab, it’s best to keep your options open. In the event you come across a deal, you want to be able to exercise an exit strategy that’ll work in your favor. For a better idea of which exit strategy may be best for your situation, click here. You typically won’t choose your exit strategy until you have found a property that can fulfill your expectations.
Once you have completed every other step of the real estate market analysis, including an in-depth look at the numbers, begin to formulate the most optimal exit strategy for your particular situation. Ask yourself one important questions: Will this exit strategy work well with the subject property and all of its corresponding numbers? This is where you will want to confirm the exit strategy will help you meet your goals, and whether or not it works with the property in question.
A good market analysis will take everything into consideration, and real estate market trends are no exception. If you want to conduct a market analysis you can trust this year, make sure you account for the following:
A truly comprehensive market analysis is invaluable in the hands of savvy investors. A thorough breakdown of the factors in play in each specific market can paint a clearer picture of how a deal should unfold. That said, no analysis is complete without incorporating the right real estate market trends. Today’s investors have the opportunity to improve their deal analysis with a thorough market review and an eye on the trends.