Knowing Your Local Market

[Edward Callaway]

Good morning,

Newbie here! My wife and I have decided to start our strategy of exiting the proverbial “rat race” through real estate investing. We are currently interested in short-term rentals and buy-and-hold rentals. All the time we hear people stating to make sure you “know you market” and “understand your local market” and various other verbiage similar to that.

What exactly does “knowing your market” entail? And what are some steps in the right direction to learning more about your local market?

I’ve been advise to join a REA in my area which i plan to do, but other than that don’t know much more on info on getting me to the right direction i need to be in.

Any advice is greatly appreciated!!

[Michael G.]

Great question! I feel like this is a term (or terms) may be misunderstood as the definition can be subjective.

I like to think I know my markets pretty well, at least I like to think so. Here are some items I would include in your quest to define this term:

1. Knowledge of Specific Areas within a City or Town ~ You should be able to answer the following questions with a degree of certainty: How much are comparable rentals going for? How long are rental or sale listings "sitting" on the market? What are the demographics for this area? Historic sales in this market for the last 2-3 years - this can reveal trends and potentially "gems" in a tough market.

2. Development & How it Will Affect you? ~ If your looking in a city, look for potential developments - this will take a little time to accomplish. This can include university expansion, new businesses (i.e. the Amazon HQ2 Fiasco!), train stations, etc... You ever hear the phrase "follow the money"? Doing this will allow you to proceed in tandem with big investors or city development projects. Finding properties that align with other investment sources will provide you security when you make your investment.

3. Who do you want to rent to? ~ Families (should be good schools around)? Young professionals (bars, coffee shops, downtown)? University students (trains)? A mix? Again, this comes down to demographics. What type of rental are you looking to purchase and hold? Are the rentals top of the market, mid, or below market? Now pair the financials with the demographics and you begin to paint a more vivid picture.

Lastly, I would recommend, as I've seen on these forums many times before, walk around and "get a feel" of the area. Talk to people or visit the local bar or coffee shop:I know this sounds cliche, but invest your time before you make a decision and invest your money. Due to my style of investing (which many may disagree with) I like to ask myself: Would I like to live here? Or, Would I feel comfortable collecting rent in this area? It helps clear things up a bit when balancing all the tedious details than come with an investment like this.

Best of luck my friend!