How to Choose a Good Market

Question

I live in California and as we know, its a huge state! There are a lot of very expensive areas but there are also some cheaper areas if you know where to look. Trying to narrow my choices of a good market to invest in and wondering if anyone has any advice. Any tips on how to pick a good market? What factors should be considered? What indicators should I look for? Any tips at all are very much appreciated. Thanks!

Rami Aweti · Answer

Hi @Dana BoydThe first step is identifying which market you are in. In real estate, there are primary, secondary, and tertiary markets. These markets can feed off another during a market cycle. Let's look at the Bay Area as an example: San Francisco (primary), Oakland/East Bay markets (secondary), and Sacramento (tertiary). The growth in San Francisco spills over to the East Bay and eventually makes it's way to areas like Sacramento. If the market crashes (not that I think it will), you want to be looking in the primary and secondary markets. The next variable is population growth. You can find city data here or see if your nearby cities show up on the fastest growing cities list. These are all good resources to use in conjunction with a Zillow search. I wrote an overview on this topic here as well.Let me know if you have specific questions about your local market and I'd be happy to help!

Dana Boyd · Answer

Thank you very much Rami Aweti and Ronil Dwarka. Very helpful info!

Joe Villeneuve · Answer

Except that counties don't represent specific properties in that county...and I find useless. Have you ever seen the exact same house in multiple locations within a county, and they rent/sell for numbers that are no where close to eachother? You can plot the rents for the same 5 houses on a map that is 2 miles square, and the rents can be anywhere from 1200 - 1650 (or wider).The larger the area you analyze, the more inaccurate and useless the data is.

Joe Villeneuve · Answer

Investing in an area you know doesn't make that market a good market to invest in. Knowing a market isn't a qualifier of a good market. However, I would never invest in a market I didn't know inside and out. That's not a contradictory statement. First you find a good market. Then you learn about that market so you know it better than the one you live in. The order of appearance is different Kind of like all squares are rectangles, but not all rectangles are squares.Also, whether a market is a high end or "cheaper" doesn't make that market a good one...or a bad one. What makes a market good.bad is the spread between your costs to get in and your cash coming out.

Brooke Wilson · Answer

@Dana Boyd - Bakersfield is a good market, with some new development happening. Amazon distribution has moved in, as has lots of other distribution. It's an affordable market to get started in, for sure.

Jo-Ann Lapin · Answer

Kern county still have pretty decent returns . Look up Sanjeev advani in Bakersfield he has property management and real estate . I hope this helps .

Ben Howard · Answer

I disagree with Ronil Dwarka when he states that "every house out there is a bidding war right now". Consider market activity from 7/13 to 7/20 in Folsom, CA: 28 homes went pending status and 17 of those had multiple offers. In El Dorado Hills CA during the same 7/13 to 7/20 period 33 homes went pending status and 17 had multiple offers.This is not to say that as a market we are short on inventory, however the accuracy of data provided is very important. The Monday to Monday week prior (7/6 to 7/13) Folsom had 34 pendings and 19 had multiple offers. El Dorado Hills had 38 pendings with 20 receiving multiple offers.I agree with Joe Villeneuve when he states that the data available is not a resource when it is inaccurate. This statement is spot on.Counties are vast geographically and very diverse with a substantial number of factors influencing rent and therefore value. Analysis of rent within a specific zip code is better, but even then not a great tool. To further illustrate this point consider how one street may be within a particular school district while the next street over may be in another. This is to say nothing of different schools within the same district which further makes my point. Your Realtor is a team member in your business. They should clearly understand how to utilize third party data providers (not just the MLS and/or Trendgraphix data) to increase your investment potential. They should be available 18 + hours a day, everyday to answer your questions. They should invest in your business via data that is accurate.

Ronil Dwarka · Answer

Hey Joe, have no clue what you are talking about, if someone is new & trying to dissect a state, looking at overall county-level data kinda gives a first initial feel (city-level too). Of course, you don't have to, if you have done your homework, then you can jump straight into the most micro level you want, or whatever you are saying. Or if you are seasoned in the field. I have investors who demand monthly tracking of cities/counties, appreciation/trends....a good example is May to June - with drop in unit sales in CA in April/May & price not really affected, July suddenly saw a crazy rebound in terms of field activity, every house out there is a bidding war right now

Ronil Dwarka · Answer

Dana, CAR has up to date SFR median prices for all counties, they have all kinda data, so you can easily analyze appreciation etc, target your counties. I am a Broker with Berkshire Hathaway here in Sacramento, so I have my bias for this region. Only thing I will say is this Sac has an established income population i.e. huge public sector base and then if you add Amazon Fulfillment Center & the growing private sector base etc. Plus u have to go for specific zip codes, not just county or city. Also, biggerpockets i think has a piece written on this topic. Good luck.

Twana Rasoul · Answer

@Dana Boyd personally id invest locally in the areas you are familiar with to give yourself an advantage.