Where to Invest in Real Estate (Finding Your Target Market)

Sharon Tseung 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income become financially free and design their best lives. When it comes to investing in real estate, especially out of state, you need to carefully select your market. So while the term research may not sound very exciting, it’s a very, very important step that many people overlook. People might just think, oh, I can just invest in anything that cash flows, but the problem is, they might be investing in a place that doesn’t have demand. As an investor you have to do your homework and thoroughly research the market before investing because if you invest in a depreciating market, for example, you might end up with a property that lowers in value because nobody wants it with a better understanding of what to look for in a market, you’re able to look for places with appreciation potential and potentially have less headaches for you. So let’s get into today’s episode on what to look for in real estate market. So the first thing you want to consider is supply and demand. Ideally, you want the supply of rental properties to be low and the demand to be high. If there are fewer rental properties and more renters needing homes prices are going to go up because demand is high. This makes the area a desirable place to invest. So to understand the supply and demand in a particular market, you’re gonna want to consider different things like how many rental properties are available on the market. What’s the vacancy rate? How long does it take to fill these properties with renters. And the way you can do this is you can check platforms like Craigslist, and Zillow to see how many properties are on the market and how long they have been listed. So what you’re gonna do is go on Zillow, and look up a specific location and then maybe you narrow down on specific criteria maybe in a certain area as well as go into the bed and bath count the home type. Maybe you want to select just homes. If you want to look specifically for properties that have been on Zillow for longer, you can go to more and then click days on Zillow to 90 days or so and then you can see the amount of results that are there. You can also filter by for rent instead of for sale. And then you can see how long these rental listings have been on the market as well. So by looking into these different things, you can get a better understanding of your market understanding the supply and demand dynamics will ensure that your property is more likely to appreciate in value over time and potentially increase your rental income. Number two, you want to look at population growth people are basically your customers in the real estate market. So if the population is growing, it means there are more potential renters or buyers in the area. A growing population could also indicate a growing economy which is a good sign for real estate investors like supply and demand. A growing population means more demand for housing, which can lead to higher property values. Number three is cashflow ability. So what is cashflow? It’s the amount of money that a rental property generates. After all the expenses have been deducted. So you want to make sure your property has the potential to generate income after accounting for mortgage insurance taxes, property management fees, repairs and vacancies. So in order to do this analysis, you can estimate rental income through platforms like rent ometer, Zillow and Craigslist. Once you get the rental income numbers, you want to deduct the estimated monthly expenses and you want to allocate 10% for repairs and vacancies in case anything happens number four, you want to understand the monthly rent divided by home price ratio, this ratio is a good way to understand if a property makes financial sense to purchase. So the 1% rule is a common basic framework used in real estate investing. And it basically says that the monthly rent should be at least 1% of the property’s purchase price. So for example, if a property is priced at $100,000, the monthly rent should be at least $1,000. But even if it cash flows well, you still want to make sure the property is in a good neighborhood to avoid constant issues with tenants and repairs. And again, you want to make sure your market has appreciation potential. Number five is job growth job growth is super important because more job opportunities attracts more people to an area which can increase demand for housing higher demand can lead to increased property values and rents which will make your investment more profitable. It’s also a sign of a healthy growing economy. If the economy is strong, people are more likely going to be able to afford housing, whether they’re buying or renting, which will lead to lower vacancy rates for rental properties. And it means for a more stable real estate market overall, tenants are also going to be more likely to be able to consistently pay their rent. So then homeowners are going to less likely default on their mortgages, which means more reliable income for you as an investor and lower risk if you’re holding these mortgages in the area. So in order to look up this information, you can check sites like city hyphen, data.com. And if you really want to, you can look at those top 10 lists on Google. The thing is, with those lists, you’re probably going to be competing with a lot of other investors because it’s going to be more saturated if it’s always listed on certain top 10 articles, for example, top 10 places to invest top 10 places with the most job growth, things like that. So look at the list, but also go on city data.com and other sites so you can look up this information and decide for yourself which is going to be the market for you. Number six is increase in housing prices. So you’re going to want to look at historical data because it’ll give you an idea of what other home values are appreciating in a particular market, the amount of appreciation can really vary depending on the different markets and even within the same market, like some neighborhoods might be appreciating a lot more than others. So what you’re going to do is you want to reach out to local real estate agents, property management companies, or check government websites to get this type of information. You can also just monitor certain markets daily and sort of understand the fluctuations in values. For example, for me, I constantly look at Dallas and look at the pricing to see if things are changing or not. I’ve been doing this daily for months. So it’s important to do your due diligence when you’re studying markets. Number seven, you want to look at other population drivers and future developments. So population drivers include stadiums, tourist attractions, universities, airports, this can all attract people to a city and future developments. Like for example, the construction of a new Google office or Amazon office, those things can significantly increase job opportunities and demand for rental properties which will lead to higher rental prices. And sometimes when you’re looking at these super popular markets, you might want to look into short term rentals or monthly rentals and see if it’s a viable option. That way you have multiple exit strategies. For example, with our latest furnished rental, we noticed that it could do well as a monthly midterm rental we were basically looking at competition on Zillow and kind of realizing that it can do well like this. However, Dallas is basically banning short term rentals. And the good thing is we had multiple exit strategies for this home, it was already going to do well as a long term rental, but we’re planning on gearing it towards traveling nurses in turns, business assignments, relocations, emergencies, and we made sure that the numbers could work either way. So by kind of studying what is around in the market will help you decide what strategy you want to choose for your property as well. Another example is if the property is near hospitals, or if it’s near tech, it might be good for monthly rental like I mentioned earlier, or if it’s downtown in a city with a lot of foot traffic, maybe it will work as an Airbnb as long as it complies with city regulations. So I kind of went off track here, but I’m basically saying that these population drivers can not only help the value of the property, but also can impact the strategy you decide to choose with your property. Number eight, you want to make sure crime rates aren’t high. So high crime rates can negatively affect housing prices. When you’re buying in an area with a high crime rate, you should expect longer process for repairs, property damages, and perhaps crime related situations. So instead of investing in a D class neighborhood, maybe you want to look for a B or C neighborhood. So in order to check the crime rates, you’re gonna want to check city data.com Like I mentioned before, as well as Department of numbers. And sometimes what I like to do is check on bigger pockets and look at different zip codes and what people are saying about them. Number nine, you want to look out for natural disasters, so investing in areas prone to natural disasters can be risky. While it’s obviously common to the US to come across natural disasters every year some locations are going to be safer than others. So you’ll want to see what you’re comfortable with. Are you okay with tornadoes hurricanes in different areas? Are you going to shy away from different ones you want to do this research before you invest in the market. I hope you guys enjoyed these nine things to look out for when you’re researching your market. Analyzing real estate markets is a very important step in making an informed investment decision by considering things like supply and demand population growth, cash flow, potential housing, price trends, all these different things you’re gonna be able to identify a promising market for your investment so make sure you thoroughly research and do your due diligence. So hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai