How To Not Fail: Determining Demand in Buy-and-Hold Real Estate

Why understand demand?

People pay for what they want. If you have what they want, you get paid.

How to determine short-term demand.

Understanding and conforming to demand is very profitable. It not only gives you higher income but also reduces the time you spend looking for good tenants. The best way to quickly determine short-term demand is to use leverage.

• Call a local rental agency/apartment complex and ask about their vacancy rates. If you have a three bedroom house, see if they have any three bedroom apartments/houses available and how often they are vacant.
• Call craigslist ads for homes similar to yours and ask how many applicants they usually have and how often the place is vacant. Most landlords are happy to share their experience with you. Let them brag a little.
• Put up a Craigslist ad and see how many people reply.

How to determine long-term demand. 

There is nothing better than getting this step right because your success depends on it. 

• The U.S. Census website will give you statistics on all population demographics and even rent vs. own and vacancy rates for an area. Have a look at how the population and economics are changing over time. How will your rental meet the demand? How will the changes impact rental rates and property values in the years to come?
• Go to your city’s website.
  • Are they giving incentives for low-income housing, small business start ups or even residential and multi-unit construction?
  • Are they changing the zoning in certain areas to encourage growth?
  • Check for recently issued building permits. What are they for, who applied for them and what does that mean for the area?
  • Look at the proposed general plan. What does the city think is going to happen in the future and how are they adapting?

When is rent demand highest?

Knowing when demand peaks can also impact prices. I have a college rental and if a lease ends mid semester my phone is silent and rates are lower. If it’s a couple of weeks before the beginning of the semester I can get 25 calls in hour and charge more. How do you determine when demand is highest?

• Call a property manager/apartment complex, and ask when people are most likely to move. For most areas it will be fall and spring but that could change based on the local economy.
• Call landlords posting houses for rent online and ask when demand is the highest.
• Look at the local population and economy. Is there a time of year that people are more likely to move? Why?

All a real estate investor really needs to do to be successful is supply what the population demands. That’s it.