A good market?

Question

Hello BP!
	
	I've got another question, which summed up is: How do you decipher if there is a good market in an area?  
	
	My hometown is kind of a ghost-town that has taxed itself to death, so I've been looking at my neighboring towns/cities.  My neighboring town has alot of real estate for sale, but from what I have seen in this city, there's alot of houses for sale, more than a fair share of slums, duplexes and other properties of the like so I am a little leary of trying to do business there.  But the flipside is, it looks like there's a positive population increase of 9% since 2000...

Should I be leary?  Or am I doing this all wrong?

Elizabeth Colegrove · Answer

@Craig C.

While I am sure I will forget something, I tend to subconsciously look for the following when looking at a new area. The criteria is in no particular order.

• Price for the class of neighborhood I look for (we tend to buy Class a, proffesionals)
• Number of neighborhoods in this market
• Rent in each of these areas
• Types and Earnings of Business who support my tenants
	
		Likely hood that they are long term or short term and why would they rent over buy
		
			military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
			local factor- if these tenants are non-transient why do they rent?
• Likely hood that they are long term or short term and why would they rent over buy
		
			military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
			local factor- if these tenants are non-transient why do they rent?
• military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
• local factor- if these tenants are non-transient why do they rent?
• Number of days the houses are on the market
• Number of rentals available

• Likely hood that they are long term or short term and why would they rent over buy
		
			military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
			local factor- if these tenants are non-transient why do they rent?
• military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
• local factor- if these tenants are non-transient why do they rent?

• military - Due to the military moving frequently many will not buy, so they stay for 3+ years, treat the house like a home but do not buy
• local factor- if these tenants are non-transient why do they rent?

Craig C. · Answer

Hey Tim, thanks for you response.  Yes I've looked at the demographics, but it appears they are moving down, median household income's median household income in 2011: $32,371 (it was $34,824 in 2000), the average household size was 2.45 and the average family size was 3.00, which tells me the average person makes less than $1400 a month, unless again I am looking at something wrong.  Following the 3 to 1 rule, I wouldn't be able to rent more than $475 for a single renter and expect any real consistency in their payments...

Originally posted by @Elizabeth  C.:

"local factor- if these tenants are non-transient why do they rent?"

I'm not certain.  I mean there are 2 good size colleges here, but there is also a decent amount of industry.

With some of what your saying, I simply don't understand how to find out some of the information lol.  Rent prices by area, yes.  Looking to rent long term or short term, I don't know.  Number of days on market, I know appx. how long but not how to tell if it's necessarily a good or bad deal..  there is no military except national guard/reserve.

Alot of the houses have been built between 1900 and 1950, and need alot of rehab, but again there are alot of houses for sale.
	
	Thanks for your reply.

Account Closed · Answer

Craig,

I had some trouble renting out a house I purchased.  Little did I know the reasonable $1200 I was asking could only be afforded by 16% on the residence.  It was a good price for the property, just not affordable by most.  Be sure to use demographics when choosing an area.  Determine your required rents and research the average income for the neighborhood.  Look for some type of industry to keep people employed.  Maybe the school district should not be the biggest employer.  Some of the best neighborhoods have a high percentage of owner occupied homes.  Also, determine your pain threshold.  Are you comfortable chasing down tenants for rents? Every month?  Can you survive a few months without receiving rent?  If so, you might consider the "slums".  Great tenants can live everywhere, your choosing the right tenant is most important. That 9% increase in population, are they moving up to a nicer neighborhood, or moving down. Good luck

A good market?

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