6 Strategies and Action Items To Find Your Target Real Estate Market

Breaking into real estate investing is hard! Among many skills to learn, “newbies” are usually unfamiliar with real estate markets besides from having lived in the location, heard on the news, and maybe researching the location to visit. Accordingly, one of the first impediments newbies face in real estate investing is selecting a target real estate market. The good news is that there are a lot of resources and activities you can do to overcome this initial obstacle to real estate investing. Here’s my top 6 strategies on how to select a target real estate market to invest in and action steps you can take to start investing in real estate. Knowledge is power, but only with action!

• First, if you have some idea of where you’re looking to invest, focus on the macroeconomic data of your target market. What we mean by “macro” is trying to understand a broad picture of the area. To analogize, try looking at the forest to understand what trees may be inside it. Local newspapers can be helpful in providing a good macroeconomic outlook. What type of news are they covering is also big indicator of the area. Are companies moving to the area or leaving? Are jobs increasing or decreasing? Are values and rents rising or falling?
• Action item: Sign up to receive a daily email. I receive a daily email from The Morning Call, which covers Bethlehem and the Lehigh Valley.

• Second, You need to focus on the “microeconomics” of your target real estate market. Can you visit the area? If so, do so! For newbie investors, this is crucial to gain confidence by seeing and feeling where you’re about to invest. There are other options to learn about the microeconomics. You can hire a service to go for you and send you information, or hire someone on Fiverr to prepare a real estate market study for you. You can also study the microeconomic data collected by various firms, including Zillow Research and/or other free websites, or use Google maps to “drive through” your target market (I heard this on BP). Ask yourself, “Are new businesses opening up? Is there economic growth? Does the area have a revitalization plan in place to attract residents and improve the neighborhood?
• Action item: Visit your target market, if possible. This is not required, but it should be in my book. You’ll learn a lot about your skills and test your decision to invest in this location.

• Third, focus on the real estate inventory available for sale by setting up searches to automatically send you properties when they hit the market. This step alone enabled me to purchase a single family house in a competitive real estate market. To access the MLS, ask your real estate agent to setup an email search for you, save your searches on Zillow, Realtor.com, and Redfin, and you’ll start receiving daily emails with new listing and properties sold. You can also set up an IFTT (“If this then that”) automation when new listing are added to Craigslist (Hat tip: @Brandon Turner ). How can you tell if something is a good deal if you don’t know what’s available for sale? You need to know what properties are selling and the price point, and then you’ll be able to identify properties that are not selling and possible reasons why. These are the properties you should try to target first!
• Action item: setup an email alert from your agent, Zillow, Trulia, LoopNet or other sites to notify you of certain properties in your farm area.

• Fourth, look specifically to the city and town your interested in. What are the housing / landlord-tenant rules for the area? Are the laws Landlord favorable, neutral or unfavorable? Do the properties need a Certificate of Occupancy, or other special licenses, or not? What real estate taxes is the property subject to, if any? Is there a transfer tax on the purchase? What are the zoning rules for this property? These are only a few questions that can impact your decision to invest in your target real estate market.
• Action item: contact an attorney or two to understand some of the local laws that may impact your property and/or purchase NOLO’s Every Landlord’s Legal Guide, so you understand some of the legal issues you may be presented with.

• Fifth, craft an executive (summary) business plan as to why your going to invest in this target market. This exercise will force you to summarize the steps above and help you form of a reasonable basis for your investment. As you progress in your analysis, add additional details to bolster your investment thesis.
• Action item: If you have difficulty starting a business plan, or haven’t done one before, try Business Plans for Dummies, or other free resources online.

• Finally, start analyzing deals in the target market area you’ve selected! You can start with the 2% Rule and the BP calculators; do them quickly, but start testing your theory on the target market. Calculate the estimated monthly rent and divide by the purchase price. If the answer is over 2%, between 1-2%, or under 1%, then you must, should and shouldn’t perform a deeper analysis, respectively. While the 2% rule is very basic, at least it provides some way to compare properties on a high level quickly. This doesn’t replace full analysis of deals, but will get the ball rolling to see if a seller dive is warranted.
• Action item: Pick a property from a search on Realtor.com. Calculate the estimated monthly rent and divide by the purchase price. Is your answer above 2%?

Picking a farm area to invest in is daunting, for good reason no less. It’s a big decision to begin investing in real estate and a lot of responsibility that comes along with it. Take a few hours to study your farm area, learn the insides and outs, analyze deals and you will be rewarded.

PS - You can also listen to the Best Ever Real Estate Podcast by @joe fairless for some of his real estate market indicators and tips and tricks. Listen here.