Analyzing a market

[Kim Handelman]

Hi everyone,

I am looking all around CT trying to find a market to buy and hold that cash flows. I am now looking into Middletown, CT it's a small town but it has both Wesleyan University and Middlesex Hospital which I like because they are both recession resistant. My question is since it's small it's hard to do a lot of the research that people talk about. I'm trying to figure out the acquisition price / rent ratio and nailing down rents is really hard! There are only 2 to 3 ads on craigslist and any one time and when I look at properties that are for sale on the MLS the rents stated are all over the board! I made a spreadsheet showing 15 properties and am finding little rhyme or reason. In one neighborhood two comps that feel very comparable will have a 2 bdr for $1,200 and then across the street will be a 2 bdr for $850! That difference is make or break as far as cash flow goes as you can imagine. I asked a realtor who has lived there his whole life and he said 1bdr $900 range 2 bdr $1,100 range. Seems too good to be true to assume the cheaper ones are under market. Any other ideas on how I can get a tighter range? Thanks so much

[Joe Villeneuve]

Market analysis is the most important of all three types of analysis (Market, Rehab, and Property) because it dictates the other two.

Simply using a two bedroom isn't enough.  What are the sq ftgs?  What are the location specific to the property you are analyzing?  There are micro-markets within larger markets.  You can have a series of micro-markets within the same zipcode, all within a mile or less of eachother.

I ended up designing software to analyze it for me (which started as just a form) so I could break down all the different micro-markets. It made an enormous difference.

The criteria a use are:

1 -Within 1 mile of the property I'm analyzing 
2 - ...In the same city...even if a potential comp is across the street, if it's not in the same city you can't use it
3 - Within 10% (high or low) of the property in question
4 - Condition of the comps compared to the property I'm analyzing.

I would suggest you take a look at rentometer.com  Just don't refer to the gauge as a guide...use the candlesticks on the map.  You can see micro-markets on the map.