Define Your own best Market Using This Tool

As we move into February and start taking action toward 2020 real estate goals, real estate experts are cranking out their “best of” lists for buyers unsure of the best place to invest for a prosperous return. Trusted authorities shine a light on developing markets across the United States, where affordable deals can be found. As a seasoned investor, I think generic advice of this sort leaves inexperienced readers wondering what characteristics make a city’s real estate market the best and if they, too, can find a deal that works for them.

As a new investor back in 2015, following mainstream advice led to frustration and discouragement while I was navigating the intense market in the SF Bay Area. Although I didn’t follow recommendations from lists like these, I did adhere to other generalizations about investing that led to dead ends. Perhaps you’ve heard the popular approach for new investors to “start in your own backyard.” Needless to say, when your backyard is one of the hottest real estate markets in the country, it’s necessary to reevaluate this advice!

At that time, I was focusing on flipping houses, a great strategy in a slower-paced market. Given the high cost of real estate and construction, with the added challenge of expensive and unreliable labor, this strategy yielded no opportunities I could afford. Similarly, commercial investing, another great strategy in a less competitive market, also proved to be an option that wouldn’t work for me.

Now that those uncomfortable years of attempting to “put a square peg in a round hole” are gratefully behind me, I clearly see the problem: generic advice doesn’t work for every investor. The good news is that it doesn’t need to. It took me several failed attempts in the Bay Area before I realized that a strategy that wouldn’t work locally would bring huge returns in other areas of the country. When I refused to give up on my goals and instead questioned where not what I was doing, I found an out-of-state market where flipping houses is a safe, affordable, and prosperous strategy. I later found several. The door a simple change in my approach opened led eventually to the establishment of MartelTurnkey.

What I learned from this experience is a simple, step-by-step process for streamlining your journey to passive income that prioritizes your personal goals and tailors your investment strategy to your resources.

Strategy Alignment Triangle: Strategy→Resources→Market

1. Outline your goal. How much money per month/year do you want to bring in through passive income?

2. Consider the different strategies you can use to achieve this goal. (Strategies describe the method used to reach your goal.) For example, in order to reach the goal of passive income, one strategy could be to buy rental properties with positive cash flow and return on equity more than twice the inflation. Another is buying a duplex and living in one half while renting the other.

3. Assess your resources. The most obvious of these is cash or accessible equity. However, don’t limit your thinking to money. What else might you possess that qualifies as a resource? Perhaps you have personal, family, or professional connections to people interested in investing who also have the capital to do so. Maybe you have relevant skills that would make you an appropriate candidate for managing rental properties as a way to save on costs. Perhaps you have a flexible schedule and can devote significant time working on your investments. What you bring to the table is of value and should be considered your personal capital.

4. After defining your strategy and assessing your resources, you now have to identify suitable markets in which to apply your strategy. Doing this first requires coming up with criteria to define the best markets for you, whether experts recommend them or not. Consider criteria that includes population, unemployment rates, business diversification, and other metrics that convey a market that will produce consistent results with your strategy. All these metrics are publicly available on the Census Bureau, Bureau of Labor Statistics, and various other websites.

5. Lastly, and this is where the “best of” lists fall short, you must research all the possible options for achieving your goals. Often, new investors unnecessarily experience a sense failure and give up prematurely simply because a popular strategy or market doesn’t work for them. It may simply be the strategy is not suitable for that market, or they do not have the right resources to make the strategy work.

Once you realize your strategy will not be successful in your chosen market, you have a choice. Either address the resource issue and/or find a suitable market. Otherwise, you will need to implement another strategy. This is what I did when the strategy I was using didn’t work in the SF market. I had to find another market where all the constraints were satisfied. Two years later, I established MartelTurnkey, which owns properties in several markets that yield great returns using the same strategy that bought our first investment property.

Don’t give up on your goal: change your strategy

The worst thing you can do as a new investor is believe your goal is unrealistic and quit when the strategy to reach your goal is the problem. Instead, revise your strategy, define your own best market, and start making real estate work for you. When you run into roadblocks, don’t give up. Use the triangle to analyze your circumstances, find a way to adjust, and move forward.