Know your Market??

[Cornelius Dabney]

Hello everyone, Since I have been on this site , I've been hearing one of the important things to do when starting out is to know your Market. My question is what does that mean exactly. Am I suppose to compare mortgage rates in the city area I'm buying in and do I have to compare monthly rent amounts in that area as well since I'm looking to become a landlord?? How do I found what the cap rate, what's a good or bad deal, how not to over spend for rehabbing??? So many questions can someone give me some insight?? Thanks, Cornelius

[Derek W.]

I take "know your market" to mean that you know the important facts of your target investing farm as well or better than any professional in the area. If someone asked me (just for example) what a 2 bedroom, 1 bathroom detached house on the south side of Arvin rented for, I'd know exactly what I'd expect to rent it for, and generally what my typical tenant base would be and how to advertise to attract this tenant. I'd know my expected vacancy rate, how easy or hard it would be to fill a vacancy. I also would know without having to check comps what this house should sell for and what I'd be willing to pay for it. For lower end units or smaller houses, I'd also know that walking distance to the carrot plant would rent instantly vs houses or apartments further away. For my mid grade units or houses I'd know what elementary school was most desirable and where the borders for the school district were. I would know where the A,B,C and D (and F) neighborhoods were, and how each level affected rent, tenant base and desirability.

If I didn't know these facts of the top of my head, I'd start my research to learn it. Like you suggested, know your multi unit cap rates, rents, vacancies, desirability in each area. A local investor friendly realtor, rental ads in craigslist, local REIA clubs, networking with local landlords would be where I started finding out my information.