A common question for people getting started in real estate investing is…
“How do I choose the right market?”
That goes for any strategy, because no matter what you’re doing in real estate – wholesaling, fixing and flipping, buying and holding residential or commercial rental properties – you want to make sure you understand the market, which requires you to learn how to analyze properties, as well as market and sub-market data.
This is what I talk about in a recent Periscope session. Take a look:
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As you’ll learn in the video, before you pick even a single property, you need to figure out your “I, M, T, D.” Here’s what that means…
I = Investor Identity, is simply knowing who you are as a real estate entrepreneur and investor. This is the first thing you need to figure out. That way you’ll be in alignment with buyers, investors and sellers who share that same identity. It will also dictate the location(s) you’ll invest in, and the team or teams you’ll build to support your efforts, and the deals you will do.
For example, you may only want to invest in areas where the weather is really nice and you don’t experience seasons. Your team needs to share that vision and understand the area really well in order to work with you. They need to understand the types of deals and how to make them happen.
Truth is… when you have determined your identity the rest will naturally follow! You’ll understand the market, the team and the deal you need.
Stick with me…
There’s one more important thing to know moving forward when doing an analysis of any kind. It’s something pretty simple. There are three words you need to know:
“Compared to what?”
Is it a good market? I dunno. Compared to what?
Is this a good deal? I dunno. Compared to what?
Is this color look good on me? I dunno. Compared to what?
No matter what “it” is, you have to analyze (comparing to other things in that category) before you’ll know if it’s something you will move forward with.
M = Market just means where is it that you want to invest? Which location and why?
You can invest anywhere, but it has to make sense to your Investor Identity. If you want an area where the housing is close to a bus route in a lower-end market, you need to figure out where those areas are located on the map. Memphis, for example, is a great market for that.
If you want higher-end properties in a place that’s sunny year-round, close to the beaches, close to tourist attractions that draw people from all over the world, well, that could be California and Florida.
If you’re looking for the highest cashflowing properties, you likely won’t find them in southern California. You can find them in lots of different markets though.
If you want an area that while it may have high property taxes it has a stable workforce and economy no matter what the rest of the country is doing, you may want to check out Texas.
There is no wrong answer… but there can be wrong answers for YOU because some markets won’t match your Investor Identity. There are pros and cons to all markets, and that’s why you have to analyze before you invest!
If you need to know how to do that, go here:
You’ll learn a lot, including…
- How to look at and interpret property reports… and where to find the info
- What stats to look at, like unit mix and configurations, market pricing, and more
- How to interpret profit percentages, rents, vacancy rates and future growth
- Find out why the trend is your friend… whether it’s growing or not
- How to perform a sub-market analysis and understand what “sub-market” is anyway
- How to move through the DIIP, so you turn data into information and interpret that data
- Why being the best P.I.G. (professional information gatherer) you can be is critical
- How to interpret all the data to determine profitability
- How to make your properties so appealing that you won’t battle vacancies
- The questions to ask when interpreting data
- How to look at the sub-market, entire market, the region and the entire country
- Why making purchases in a down market can actually be opportunities
- How to use the data as a buyer OR seller
- Why you need to look at the demographics so you’ll know what play to use
- How to speak to property managers and leasing agents to get to the truth
Next comes the “T” in your “I, M, T, D.”
T – Team, which is something you may have more than one of.
Here’s how it goes…
If you want to invest in Memphis and you’re in California, you better have a team in place to help you get and manage properties in Memphis (so you don’t have to move there). Your team members will each have their own skill sets… and they won’t be the same as yours. In fact, each member should have a different skill or set of skills. (That’s called “teamwork.”)
You will be in a constant state of interviewing people, too. That way you’ll never have a single point of failure and just because one person doesn’t work out it won’t stop you from succeeding.
If you are limited in human capital in the areas where you want to invest, it may not be the right market for you. Every member of your team has to be in alignment with your vision, goals and overall Investor Identity.
If you want to invest in “C” Class properties in Memphis and the people you are working with there don’t understand that level of property and tenants or contractors, there will be a problem. While you can certainly educate your team, that gets mighty old mighty fast. It’s best to hire and invite members to participate who already understand the market. Your team has to know how to serve the same people (customer) you want to serve.
D = Deal, which is the very last thing you should be concerned with. There are deals… lots and lots of deals everywhere. You’ll never run short of deals. That said, not all deals will be for you… even if you fall in love with a property. They too have to be in alignment with your Investor Identity.
If you have determined that you want large multifamily properties in a lower-dollar area, you wouldn’t likely move forward with a 4-plex in a high-dollar area in California. The two don’t compare. The markets are entirely different.
Think about it this way… If you want to serve individuals (a.k.a., your customers) who are “Nordstrom” luxury shoppers you wouldn’t tell them to go to Walmart to buy shoes, would you? Doing a deal in a high-end part of California is not the same as doing a completely different type of deal in a lower-dollar area in Memphis. You will serve two diversely different customers.
The bottom line is that the deal is the interchangeable part. It’s the most flexible part.
However, when it comes to a deal you’ve found… if you don’t have 100% alignment between your Investor Identity, Market, Team and Deal, it is a no-go for you. (At least, you’ll probably end up spinning your wheels and too much time and energy to get something that isn’t even right for you.)
You’ll have to watch the video for a full picture of what you’re reading here. So go do that right now…
When you’re done, go here: