How do you analyze a Market?

Question

Hello new investor here.

I wanted to ask how do you go about analyzing a market? What are some tips and what to look for.

Thank you.

Remington Lyman · Answer

@David Denzy You can break Columbus down by neighborhood code which allows you to sort by a smaller area than the zip code allows.

Robert Ellis · Answer

Hi David, i'd focus on where there are a lot of cash transactions in Columbus like Linden, Southern Orchards, Olde Towne East, etc. That's going to be a good way to start because that's where investors are and are buying cash so you don't have to worry about lending for them.

David Denzy · Answer

New Investor (well, Wholesaler) here as well. I have a general question about analyzing a market as well. My first question: how do you pick one? I live in the city of Columbus, Ohio. Should I focus on a specific zip code to start or cast an even wider net?

@Michael Nyszczot

Hey, I'll give that a listen. Thanks.

David Flores · Answer

@David Denzy I use neighborhoodscout. https://www.neighborhoodscout.com/oh/columbus/real-estateThat is the link for the zip code you mentioned. Looks like 56.2% is rentals.

David Denzy · Answer

@Remington Lyman

Thank you!

David Flores · Answer

@David Denzy @Edgar Navarro

It depends on what you are trying to do. I will start with David since he said specifically he is a wholesaler. Whole selling works best for flippers. That is because they usually have the capital on hand to close quickly and smoothly without hiccups so you can ensure the turnaround time to wholesale. That being said I would look in well appreciated neighborhoods with foreclosures or run down properties. Flippers like these because there is protection in the neighborhoods/towns and they know they can sell for a high price. Tax deed auction sales are where you can get good deals, but in well saturated areas you will end up paying near or maybe a little below value at auctions.

Edgar if you are looking for rental properties look at towns or cities that have very high rentals. This will ensure quick turnarounds and constantly filled units to reduce vacancy risk. I usually look for 80%+ rentals in a town or city. For numbers look for the 1% rule to work as a quick glance (rent revenue is at least 1% of the purchase price. For example 1k rent for 100k purchase price). Also, I personally like caps above 10% for SFH or anything below 5 units. That is because if vacancy occurs it can be a big hit, need the extra cushion. One 5+ units you can afford a couple vacant units without it hurting too bad.

Michael Nyszczot · Answer

@Edgar Navarro - me and my business partner buy houses in new markets all the time. Here is a podcast episode where my business partner discusses how we enter a new market and who can be your boots on the ground.  Hope this is beneficial for you.  https://thevirtualinvestor.co/

Lane Kawaoka · Answer

Class A-D Properties - According to this classification system, properties are graded according to a combination of geographical and physical characteristics.

These letter grades are assigned to properties after considering a combination of factors such as the age of the property, location of the property, tenant income levels, growth prospects, appreciation, amenities, and rental income.

Class AClass A properties tend to be new construction or built within the last 5 to 10 years, with top of the line amenities and professional management. They are also located in the most desirable areas with a high potential for appreciation with high-quality tenant profiles and with little to no deferred maintenance issues.

The prime locations and condition of these properties command high rents and experience low vacancies. Because of their premium condition and locations, Class A properties also come with premium prices.

Class BThese properties are generally 15-20 years old, with lower-profile tenants, and may or may not be professionally managed. Rental income is lower than Class A, and there may be some deferred maintenance issues. These buildings are typically well-maintained.

Class CClass C properties are typically more than 20 years old and located in less than desirable locations. These properties are generally in need of significant renovations for repositioning in the market to achieve steady cash flows.

Class DClass D properties are old, run-down, and typically, without exception, in need of significant repairs. They are located in distressed communities with high crime and poor schools.

Tenants have low income and bad credit, with many even having criminal backgrounds. These properties are relatively cheap to acquire but also experience high vacancies and low appreciation.

Brian W. · Answer

Newbie question here as well! So when we are analyzing a neighborhood, how do we go about determining if a neighborhood is a A, B, or C class neighborhood? Is it determined by the crime rate, school ratings, etc to determine the rating for these areas?

Edgar Navarro · Answer

Thank you all for the responses

How do you analyze a Market?

Most Popular Reply