Tips on Analyzing a Market?

Question

Hi everyone, Dave from Philly here!

I’m trying to put together a check list of things to do to analyze the market I plan on investing in, and I wanted to get some ideas from you all about what I should include on it. My goal is to know and understand what the max ARV of any property in my sub market will be, and what factors are determining that max ARV. I figured, this way I would be able to know if the asking/sold price of a property is fair, low, or high just by looking at the metrics.

Currently, I’m keeping track of properties sold within the last 6 months, along with each individual properties sold price, date sold, zip code, bedroom/bathroom count, square footage, type of property, and year built. Are there other metrics that I’m missing that I should also be keeping track of? Perhaps I should keep track of specific details about the structure and designs of the interiors? I’m aiming to make the process as efficient as possible.

What are some essential tasks an investor should complete on a regular basis to analyze their target market and know things like:

1. Are asking prices currently high or low?

2. Am I analyzing a buyers or sellers market?

3. What is the max ARV of a specific property in the area

4. What needs to be done to a property for it to reach it’s maximum ARV?

I can’t wait to hear from you all, thanks!

Andrew Syrios · Answer

This article should help with picking comps: https://www.biggerpockets.com/blog/real-estate-comps

This one should help with analyzing a neighborhood: https://www.biggerpockets.com/blog/7-ways-discover-neighborhood-coming

Josh Caldwell · Answer

Hey David

focus on finding the deal first, then, during your due diligence period, you can have a herd of potential contractors walk through the house and give you real estimates. unless you are a contractor, you dont want to risk your money on your own guess of a rehab estimate. Reach out to other investors in your area and ask them who they use. No matter what you do, you will hit a snag somewhere in the rehab process, everyone does. Plan a 10% surprise factor into your rehab numbers just incase.

to your success

Josh

David Emanuel · Answer

@Josh Caldwell

Thanks again Josh

Your responses are an immense help!

,Dave

Josh Caldwell · Answer

Good question David "how did you know the house needed 25k for the rehab? How did you know to offer 25k instead of let's says 35k-50k? With a 75% LTV, any of those offers would result in a "home run" after a refinance."

The answer is that I asked the magic words. I asked "what is the least you would accept, if I agree to buy this house?"

Keep in mind that when you are the buyer, you are in control of the deal. I was dealing directly with the sellers and I already knew that she was about to lose the house to foreclosure, a 17k debt (that was part of the 25k)  So she was either going to strike a deal with me and get 8k, and 30 days to get her stuff; or she was going to get nothing for her house, and the sheriff would give her an hour to get her stuff.

As for the rehab estimate, I have been doing this for a long time, I used my experience to estimate the rehab at 35k and was quite happy to only need 25k.  Covid helped, as my bench of contractors were hurting for work, so they didnt charge as much as they could have, in exchange for steady work.

I hope that helps

Josh

David Emanuel · Answer

@Josh Caldwell

Hi Josh,

Thanks for your response! It sounds like your saying my strategy is efficient but not effective, and I would like to be effective with any strategy I use. My idea of analyzing a market/sub market came from analyzing individual properties in a specific neighborhood, and not knowing what to put down for the ARV or for rehab cost. I figured by analyzing the market, the ARV would begin to naturally come to me. I feel like once I have an idea for what a property needs done to it on the rehab side, and what it could potentially appraise for, I could better spot a bargain or know what the right number for me to offer on a property is.

The example you illustrated is very helpful. I understand it’s safe to assume your house would appraise for 100k or more based on the comparable you used, but how did you know the house needed 25k for the rehab?How did you know to offer 25k instead of let’s says 35k-50k? With a 75% LTV, any of those offers would result in a “home run” after a refinance.

I haven’t purchased my first property yet, and having an accurate idea of what a property needs for a rehab, and how much it would appraise for is important to me as I plan on using the BRRRR strategy.

Josh Caldwell · Answer

Hi David,

I have a great tip for you. Don't analyze a market, or even a sub market. We don't buy markets, we buy individual houses. the overall strength of a market is irrelevant.  I am hunting for bargains. A bargain by definition is an outlier and it wont conform to any broad trend analysis. I know this isnt what you want to hear, but it true.

If you want to use data to see if your property is a bargain or not, you can figure that out very quickly with a simple search of the MLS.  This wont give you sold data but it sure will give you an idea of what properties sell for in any given submarket.  For example, my last flip was directly next to a house that had sold 6 months earlier for 100k. I was buying my property for 25k and looking to put another 25k into it.  I also knew that my house was bigger (had an attic that could be converted into a bedroom) and had a bigger yard.  Did I really need to know much about the larger market or even that sub market to spot this bargain?

There is a lot of data that you can collect, that isn't really useful for you. You can waste a lot of time collecting that data, and feeling like you are working towards your goal.  I spend a lot of time breaking my students who have engineering degrees of this habit.

Your job is to make offers on houses, that is what we get paid for.  Anything that sounds like gathering data is most likely a waste of your valuable time. Spend that same time, looking for off market deals, and you will make a LOT more money.

Andrew Syrios · Answer

Sure thing David, I hope they help!

David Emanuel · Answer

@Andrew Syrios

Thank you Andrew!

David Emanuel · Answer

@Josh Caldwell

Thank you for that info Josh

With that, I will start to put more focus into looking for bargains and less into analyzing my market.

As a new investor who has no experience in estimating rehab cost, I would love to know if you have any suggestions on how I should go about it for my first few deals. Should I focus on finding deals first and then worry about rehab cost after? Or maybe find a general contractor or two who is willing to give me a bid before I find my deal? Perhaps the inspector of the home would suffice?

Tips on Analyzing a Market?

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