Hi folks, just sharing some tips I got from a @Dave Meyer video a few months back. It really helped me to identify a market to invest in, starting zoomed out and then honing in on shortlisted markets to pick the one you want. (Thanks Dave).
Deal analysis in 3 steps:
1. Macro indicators for the market
2. Housing market
3. Individual deal analysis
Macro indicators for the market:
Population growth
- Find data for market - ‘Resident Population in <City>, <State>’
- Compare to US average (by adding a line - ‘Population, Total for US’)
- Compare over last 10 years
- Compare as ‘Percentage Change From Year Ago’
- Data from FRED - https://fred.stlouisfed.org/
- You’re looking for the market to be keeping pace or exceeding the US average
Average hourly earnings
- Find data for market - ‘Average Hourly Earnings of All Employees: Total Private in <City>, <State>’
- Compare to US average (by adding a line - ‘Average Hourly Earnings of All Employees: Total Private’)
- Compare over last 10 years
- Compare as ‘Dollars Per Hour’
- Data from FRED - https://fred.stlouisfed.org/
- You’re looking for the market to be keeping pace or exceeding the US average
Unemployment rate
- Find data for market - ‘Unemployment Rate in <City>, <State>’
- Compare to US average (by adding a line - 'Unemployment Rate’)
- Compare over last 10 years
- Compare as ‘Percent’
- Data from FRED - https://fred.stlouisfed.org/
- You’re looking for the market to be keeping pace or less than the US average
Housing market:
Look at these in totality:
- Median sale price (lag indicator - growth indicates high demand)
- Inventory (lead indicator - low rate indicates it’s a seller’s market)
- Average sale to list price (lag indicator - can you offer below asking?)
- Median sale price YoY
- Inventory YoY
- Data can be sourced from Zillow, Realtor, RedFin, and so on.
Individual deal analysis:
Use the BiggerPockets calculators:
- ‘Rental Property’ calculator
- ‘Rent Estimator’ calculator
Some tips for data input:
- Input the asking price as purchase price
- Input annual growth as ‘2 per cent’ (this is the long-term US average)
- Input vacancy, maintenance and capital works as ‘5 per cent’
- Input property management as ‘8 per cent’
- If you’re planning to have the tenant cover all utilities, input ‘0’ for utilities
- Input ‘$20 per month’ for garbage disposal
- For duplex rent estimation, estimate each unit individually and combine the totals to get a complete estimate
- If the property looks to have been recently renovated to a high standard, you can increase the total rent estimation by 20 per cent
- The cash flow and cash-on-cash calculations should be assessed to meet your individual needs.
Hope this is helpful.
