Keys to Analyzing Local Markets Before Buying Investment Property

[Ryan Biankowski]

Hello all, I am curious as to how you personally analyze the local real estate market before you purchase a house for A) Flipping and B) Renting? What are the differences you look for? (Ex. Neighborhood, school districts etc etc) How can you tell if it's a buyers or sellers market? Thank you, Ryan

[Clayton Mobley]

@Ryan Biankowski Welcome to BP! I think @Sara Eastler and @Jean Nelsen have already given some great answers, and obviously being based in Birmingham, AL, I know that market best. But there are a couple other factors that I would consider in vetting any property because they are things that investors like about our market - not a sales pitch, just some information from someone who has seen what other experienced investors look for and what makes a market viable. We mainly focus on turnkey, but we do also handle a good amount of retail sales, meaning we basically flip. There are some differences there in terms of neighborhood but a lot of the same stuff applies.

In addition to crime and location close to main roads, I also would look at jobs growth vs cost of living in the area. A lot of big cities have decent jobs growth but also have regularly increasing cost of living, which means there may be more people but they have less money than those earning the same salaries in secondary markets. If a market has better than the national average jobs growth but lower cost of living, that's a great start. More employed people with lower expenses means they have more wiggle room to rent a nicer place.

Sara also mentioned looking at whether or not new businesses or franchises have opened nearby, which is a great tip if you are looking for up-and-coming neighborhoods. In the same vein, you want to see what big employers the area has and how easy it would be to get to those locations from the property. So, in Birmingham, we have a the University and it's teaching hospital which employ more than 18,000 people. This means we can expect that many of our tenants will be nurses, doctors, educators etc and will need quick access to the U. On the other hand, the Mercedes Benz plant is actually in a much more rural town outside of Birmingham proper- which means that, while people could live closer to work, they often prefer to live closer to the city - somewhere in between downtown and the plant. So you should cast a slightly wider net when looking at employment opportunities around a given property as your rental demand may actually be coming from slightly further afield depending on the specific geography of your market.

When it comes to flipping, you're probably looking to sell to an owner-occupant rather than another investor, which means certain things become even more important. Think about who rents vs buys their homes. People who are looking to buy are looking to set down roots, maybe have a family - in short, they're probably looking to stay a while and will want to have a lot of bases covered right off the bat (whereas renters may be thinking they will move or buy elsewhere 'when the time comes' whatever the 'time' might be). So school districts are obviously huge. I recommend looking at schooldigger.com and k12.niche.com for ratings. Look at city and state rankings, but also drill down to the specific neighborhood or city region, as depending on how big the market is and where the employment opportunities are centered, potential buyers may have to split the difference between the best possible school and the best possible commute. Pay attention to the teacher/student ratio as this is often a huge factor for a lot of parents.

Also pay attention to tax districts. If you are looking at a one bedroom property, you are not likely going to get a family as tenants or buyers, which means you don't want a property in a school district with high tax rates, since buyers generally won't want to pay taxes for a school they aren't using (and neither will you if you choose to rent). If applicable, owning/renting property in a special district (which levies taxes for specific things like airports, cemeteries, drainage, pest control etc) can also pack a punch. While taxes are necessary to keep the country running, property taxes can differ from street to street, so make sure the taxes your tenant/buyer would be paying make sense for the services they would be using. 

Other things to look for in either scenario, but potentially even more so for flipping, are things like the walkability of the area (can people walk to things like bars, restaurants, coffee, school, is it very hilly or is it a pleasant stroll), ratio of owner/occupants to renters in the area (people like to buy where everyone else buys, not in high rental areas), street noise (people like to have easy access to the highway, not be underneath it), etc.

Of course, while internet research is hugely beneficial, a great way to know if a property is a good bet is to visit it and tour the town yourself. Feet on the ground, even just once, can make a world of difference in RE since many markets are very different block to block. 

Hope some of that helped. All the best in your new adventure!

Clayton