If you want to be a successful real estate investor, you have to do thorough market research. Real estate market research is essential whether you are an experienced investor or a newbie. That is because the analysis will reveal the determinants of crucial real estate market metrics.
As a result, you will invest in locations and properties that can guarantee you success. When you perform the right market research, you can also identify emerging real estate markets or productive neighborhoods.
Some locations may not be thriving now, but they can have great potential for doing so shortly. Only real estate market research will reveal this to you.
The crucial phase of real estate investment is market research and planning. But it doesn’t mean that the execution phase is simple. Performing proper market research is what makes it easy. That is why you need this guide as an investor.
Start with the Macro-Level Before the Micro-Level
The macro-level of real estate involves the general market, while the micro-level deals with the specific neighborhood. It is preferable to have a broader view of the overall market before going into real estate investment.
Doing this will provide you with an insight into vital market trends. You will also learn about seller’s market versus buyer’s market, migration of people in and out of place, and the oversupply or undersupply of industries in a city.
With all this information, you will be able to choose the best investment strategy for your target.
Macro-Level Research
1. Seller’s Market Versus Buyer’s Market
Knowing the type of market that you want to invest in is essential in real estate. To identify this, you need to look at specific parameters such as:
- Days on market
- Average listing price
- Housing inventory
Most investors want favorable buying situations or a buyer’s market. That is because the buyers have control over the price of properties. However, you can also proactively invest in the seller’s market.
The increasing demand for houses in the US tends to favor sellers. As a result, we have more of a seller’s market.
2. Demographics, Economy, and Job Market
Studying the demographics, economy, and the job market is vital in identifying emerging real estate markets. With this information, you will know if a city will be an appropriate location for your investment.
If the economy in the city is booming, then you have a guarantee that there will be a surge in the migration of people into the place. As a result, the demand for rental properties will increase.
3. General City Data
As an investor, it would be best to analyze a city’s real estate market. To do this, you need the general city-data. From this information, you can get vital metrics such as:
- Average median house price
- Average rental income
- Average Cash-On-Cash return
Micro-Level Research
After understanding the general market, the next thing is to identify the location with the potentials you desire. To do this, you need to look at some crucial data.
1. The Statistics
Essential statistics, in this case, will entail:
- Cap rates
- Retail rates
- Vacancy rates
- Occupancy level
- Net absorption
- Demand and supply
These statistics will give you an idea about the profitability of a neighborhood. With this, you can narrow down your general market strategy to focus on a specific market.
These details are available on numerous websites. You can also contact local real estate agents who will provide you with monthly reports for the location.
The personal experience and knowledge of your real estate agent are also essential here. With all these, you will know if the market is performing well or not.
To learn more about these and other investment terms, check out this property investment and management glossary.
2. Available Amenities
When choosing a neighborhood, it is also necessary to consider the availability of amenities. That will include looking out for proximity to good schools, access to good roads, transportation, hospitals, parks, etc.
Analyze Individual Investments
After choosing a target market and strategy, the next step is determining the property’s value, potential, and performance. You can analyze a property’s value depending on the type.
For residential properties that are single-family homes (SFH), you can use comparative market analysis. In this case, you check the property prices of comparable houses.
However, the analysis of commercial properties is different. Here, the cap rate is the appropriate tool in analyzing the property’s value. Cap rates show you the income that a property can produce in a particular market.
Real estate market research requires practice. Also, it would be best if you stay updated on the news and trends that will help you modify your strategy or portfolio. Doing this will make the execution of your real estate investment plan to be easy and smooth.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
