All Forum Posts by: Scott Sutton

>>> I think you'll find that -- unlike in the stock market or other truly passive investment areas -- have a fully diversified RE portfolio will be nearly impossible unless you invest in REITs or own one.

Didn't mean to imply that I'm seeking a diversified RE portfolio. I'm not. Rather, I'm trying to identify a market in which to focus my initial efforts. I do understand that RE investing is a different kind of animal, and specialization in geography and approach seems wise for a beginner -- or, perhaps, anyone for that matter.

>>> People who are willing to spend the time researching and analyzing these trends can do a reasonable job of forecasting for the short- and mid-term, which is often a long enough time to make a lot of money in real estate.

Point taken.

>>> Remember, Warren Buffett would be the first to tell you that diversification is the *wrong* strategy -- instead, get really good at something, and then repeat it over and over and over again. He's proof that it can work.

Interesting comments about fund managers, but you're speaking of a business-oriented approach as opposed to the hands-off approach suitable for most investors based on their limited knowledge. Even Buffett's on record as advising most investors to adopt a passive, indexed approach.

In any event, I didn't mean to get us off track in a discussion of non-RE investing. Just wanted to share some connections and realizations I'd drawn in my own mind. :D

Tnx,

S...

Folks, thanks for the thoughtful responses. Good stuff. I'll check out Vollucci's book.

>>> Scott, what you are asking for can be broken down into two distinct components ...

Exactly. There's no shortage of data, but without some type of methodology to sort and prioritize it, a comparative assessment of multiple markets would be little more than a futile exercise in guesswork. (And, yes, a methodology could simply be one that an experienced investor has developed over time, and one that's difficult to explain in explicit terms to others.)

>>> This is because there is, in reality, no one methodology. The evaluation of markets, like the evaluation of stocks, involves judgment and each person will exercise judgment differently.

Yes, indeed -- understood. (See my first post and below.)

>>> I would recommend that you use your own common sense and judgment to come up with a methodology that suits your beliefs and instincts. I say this because I know many stock investors who learnt a particular methodology and then failed... how do you know if a methodology is a good one or a lousy one?

But, remember that these big companies get it wrong plenty of the time.

No question, and the stock analogy got me thinking. A few years ago, I did a ton of reading on the subject of portfolio theory in the process of picking up a CMFC certification. In that literature, a prominent debate rages between advocates of 'active' and 'passive' investing. Active investors seek ways to 'beat the market,' while passive investors focus on the asset-allocation decision for their portfolios, and they simply use low-cost index funds to capture the full return of each asset class in which they invest.

I mention this for three reasons:

1. I'm a 'passive investor' when it comes to non-RE investments, so my mind first turns to the asset-allocation decision. In REI, this decision seems to consist of three parts: a) the market(s) in which one invests, b) the type(s) of properties, and c) the strategy employed (i.e. buy-and-hold, fix-and-flip, etc.). This is just the way my mind works, so I'm starting at the highest level by attempting to evaluate potential markets.

2. You can learn a great deal about an investor simply by knowing what kind of activities and information they spend their time on. In REI, macro-socio-economic factors may be interesting but, ultimately, they're beyond the control of the individual investor and largely unpredictable. And since I suspect most people invest where they live, such cross-market comparisons may be of no concern. Consequently, it seems that most REI investors wisely choose to spend their time on things over which they can exercise some control. Makes sense.

3. Just as numerous scholarly studies have shown that the number of actively-managed mutual funds that outperform the market (i.e. the index for the relevant asset class) are no more than one would expect from pure chance, I'm sure there are plenty of ill-conceived techniques for REI market evaluation -- but I also suspect there are a couple of 'tried-and-true' principles that are worth consideration. To some degree, an investor can learn from others in the 'marketplace of ideas.' If a methodology has some value and has produced worthwhile results, we'll hear about it from credible sources who have earned our trust. (That's not to say that identifying 'credible sources' is a simple matter, or that a single methodology is appropriate in every context.)

Anyway, in light of the points and caveats raised by everyone above, I think I'm really just interested in seeing a few examples of how small investors have gone about evaluating and comparing a handful of markets. In particular:

1. Which specific factors/data did you consider?
2. How did you prioritize this information?
3. Why did you adopt this particular approach?

Needless to say, my circumstances will differ, but I'd be quite interested in learning more about the thought processes employed by RE investors when assessing alternative markets for a buy-and-hold, cash-flow approach.

Cheers,

S...

Jason (J Scott), thanks for your reply.

I'm not looking to be told where to invest. First and foremost, I'm seeking a resource or two that provides fairly explicit guidance in how to independently evaluate markets on my own.

For instance, you and Jon (thank you both) have shared links to two companies that regularly produce information-packed reports, and these reports provide some level of analysis for the company's purposes. While the reports contain heaps of data -- and I plan to dig in -- I'm looking for a book or other resource that attempts to explain what steps a small investor should follow in order to interpret available data to arrive at an overall market assessment for their own purposes -- in other words, a methodology that an economics layman could follow in order to assess the viability and potential of a market.

Of course, maybe such a thing doesn't exist. But without some kind of methodology, the process of choosing a market in which to invest would be something of a crapshoot (in part, for the reasons you point out).

Thanks very much, Jon. Those Red Capital Group reports look promising, and I'll have a look at Lindahl's book.

Good stuff, I'm still hoping to find something that's a little more prescriptive. :-)

Of course, I'm sure there must be some economists or other professionals who stay abreast of the conditions in US markets and publish updated comparative analyses. Who are they, and where/how does one get this information? No sense 're-inventing the wheel' from scratch if credible sources are already doing this work.

Personally, I'm interested in comparing the following US markets:

• Phoenix, AZ


• Tucson, AZ


• Charlotte, NC


• Charleston, SC


• Portland, OR


• Dallas, TX

And while it's of less importance, I'm also curious about conditions in the following Central American markets:

• Belize


• Costa Rica


• Panama

Thanks,

Scott...

Hi everyone,

In this post ...

http://www.biggerpockets.com/forums/12/topics/51498-question-on-market-evaluation

... I asked for some resources for the purpose of analyzing various markets, and respondents provided a few helpful links. Now I have a related question.

Can anyone point me to a Web resource or book that provides a step-by-step explanation of how to evaluate and compare real-estate markets? In the limited reading I've done thus far, the authors touch on this subject in only the most general terms -- i.e. to evaluate a market, one should consider population growth, economic conditions, infrastructure, average cap rates, housing supply and demand, etc.

While such guidelines are a good starting point, they fall far short of walking an inexperienced investor through the process of conducting such an analysis. I'm sure opinions differ widely on what factors one should consider (and the relative importance of each) -- and I realize that a high-level analysis of a city's real-estate market has limited utility (i.e. 'all real estate is local,' opportunity exists in most every city, etc.) -- but a 'market-evaluation tutorial' would be exceedingly helpful for someone in the process of determining where he or she wants to invest.

Thanks in advance for any suggestions. In the short time I've been on BP, I've learned a lot, and I look forward to one day being able to return the favor to other investors.

Cheers,

Scott...

Thanks, Charles. I'll take a look now.

BTW, one other metric in which I'm interested is the legal environment for landlords.

Hi Everyone,

I want to do a high-level comparison of US real-estate markets, and I'm looking for credible data sources on relevant metrics. For example:

1) Population growth
2) Housing supply v. demand
3) Economy - Unemployment rates, income levels, primary local employers, etc.

What online resources do you use to make such comparisons?

Thanks,

Scott...

Rich and Ted, thanks for your responses.

workerdrone (that's funny), thanks for giving me reason to cast my first vote for a post. ;-)

I'll try to track down Nick's videos, and podcasts are gold. I rarely go anywhere without my iPod, and I'd really like to add a quality REI podcast or two to my rotation. Any programs in particular that might be especially helpful for a newcomer with goals such as mine?

You're quite right about the cash flow issue with my first property, and I'm pretty open to any viable option that would keep me from rusting away my winters in the Pacific Northwest. I also appreciate the comment about developing and maintaining a focus. There's a Great Big World of possibilities out there, so without a clearly defined agenda, I can see how one could easily get distracted and overwhelmed.

Hi Everyone,

I'm new to real-estate investing, and a friend pointed me to BiggerPockets as a starting point. Specifically, I'm interested in multi-unit rental properties (i.e. duplexes, triplexes, & quads). I live in Oregon, but my area of interest is the Phoenix, AZ, market. My goal is to generate an alternative income stream to supplement my salary. To start, I want to acquire a property in which I will reserve one unit for my own use as a winter getaway.

In June, I'll begin the process of educating myself on the ins-and-outs of real-estate investing. I'm not in a major rush (my timeline for my first purchase is sometime in 2010 or 2011), but I'm also a busy guy, so I want to adopt a well-conceived plan-of-attack for my self-education that won't waste my time.

This morning, I spent a couple hours browsing BiggerPockets, and there's a wealth of information from some folks who appear to be seasoned, knowledgeable veterans of REI, so it appears I've come to the right place.

In my browsing, I came across this post by Tim Wieneke, in which he proposes the creation of an "Official Bigger Pockets Guide to Investing":

Such a resource seems ideal for someone in my position, but it looks as if it's either a work-in-progress or the idea has been dropped.

I would consider taking an REI course, but the promotional materials for the ones I've come across seem pretty high on the BS scale, and stories of scam-artists abound, so I'm wary. If I spend $ on a course, the "guru" would need to have 1) excellent references from objective sources, and 2) a demonstrated track record of 'walking the talk' and principled conduct. My impression is that such folks are few and far between.

While I'd prefer the structured approach of a course, it may be a moot point since I'm a self-starter who'd be quite happy to follow my own syllabus. The question is which materials I should include, and in what order.

I'll continue browsing BiggerPockets for advice, but I'd welcome any suggestions you folks might have for quality products in the following categories.

1. Courses/Classes

Peter Conti and Carleton Sheets are two names cited by BP users somewhat frequently.

2. Videos

3. Podcasts

In the post linked below, Joshua states that "We've got a list of podcasts in the links to the left of the page," but I don't see such a link. Can anyone point me to this page?

4. Books

Here's a list I compiled this morning of titles that seem to be 1) highly regarded by many folks on this site, and 2) appropriate for someone in my position:

The Millionaire Real Estate Investor, by Gary Keller

The Dummies Guide to Real Estate Investing, by Eric Tyson and Robert Griswold

The following titles also caught my eye, and were recommended by BP users:

The Weekend Millionaire's Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time, by Mike Summey and Roger Dawson

Investing in Duplexes, Triplexes, and Quads, by Larry Loftis

Successful Real Estate Investing: How to Avoid the 75 Most Costly Mistakes Every Investor Makes, by Robert Shemin

Defensive Real-Estate Investing, by William Bronchick

ABC's of Real Estate, by Ken McElroy

Rental Houses for the Successful Small Investor, by Suzanne Thomas

1 Minute to Rental Property Riches, by Michael Rossi

In my browsing of BP, I also came across recommendations that newbies like myself 1) join a local REI club, and 2) consider working with a 'mentor.' These are things I'd also consider if it would be a good use of my time.

Anyway, that's it for now. If you have any suggestions for how I should proceed, I'd certainly appreciate the input.

Thanks in advance, and best wishes.

Scott