Look backwards so you can look forward

[JD Martin]

I don't remember seeing this concept discussed as much as I think it is important to know, especially for people just starting out, and it occurred to me in another post I was making.

I spend a lot of time looking at houses and housing prices in my area - rentals, flips, MFH, foreclosures, auctions, etc. 99% of these units, I have no interest in whatsoever as far as a purchase I want to make (for clarification, I focus on SFH that I hold & rent). That means I spend a lot of time on the MLS, Hubzu, Zillow, Craigslist, local papers, etc. 95% of everything out there is either market priced or overpriced. 5% is likely "a deal". Now, I am not going to look at or offer anything on most of these deals. But I keep an eye on them anyway, from the point of being for sale, to being sold, to I will drive the neighborhood and see if they are being remodeled, to the flip price after the remodel.

Doing this serves me thusly:

• I get better at recognizing deals, especially in neighborhoods with which I'm less familiar, or are/were/getting sketchy;
• It allows me to reexamine my own concept of "the deal", such that I will have greater success in my offers and ultimate purchases;
• It provides hints about upcoming economic situations - overheated prices, oversaturated rental markets, etc.

When I see a house I was watching sell for 10-20%, or more, higher or lower than what I thought it should be valued at, I am forced to review my own criteria - are my assumptions about the market correct? Am I disregarding a neighborhood because of my own biases, prejudices, or sheer lack of knowledge? Am I buying into markets that I mistakenly identify as "up and coming"? Is the market becoming loaded with wannabe investors who will reduce or eliminate local deals? In short, what every other investor does helps me shape and reshape my own views on the local market. I have been quite successful investing in rental property, if I may break my arm patting myself on the back, and I believe it is because I constantly reevaluate my own basis for investing. Most of the time, homes I have been watching through the cycle end up just about where I thought they would be, but not all of them. What I learn about the outliers is invaluable towards increasing my knowledge of the local market. 

I see so many "Is this a deal?" posts on BP, and while I understand new investors are often nervous about parting with money, or are unsure of their strategy, understanding when something is a deal is a primary component of whether you are going to be successful or buried - as the saying on here goes, "You make your money when you buy". If you have to ask whether something is a deal, you haven't invested enough time learning the craft, because it is impossible for anyone to answer that question online based off a couple of paragraphs of information. You are only going to get good deals in one of two ways:

1. You get lucky.

2. You are able to act because you've built your foundation of knowledge and it is solid.

If you want to make any money in this business, aside from dumb luck, you should be prepared to work twice as hard as the next guy. Since humans are inherently lazy, that's not very difficult to do - but it involves more than scanning Realtor.com for 10 minutes each day and asking BP members if something is a good deal. :)

PS: Do not take the title of this post to mean that past performance predicts future performance. It does not. It only serves as part of an entire picture.