I WANT TO KNOW ABOUT A MARKET’S GROWTH SPURTS AND WHAT THEY TELL ME ABOUT POSSIBLE RENOVATION LEVELS AND POTENTIAL DEFERRED MAINTENANCE.
5. Does the forecast show potential for appreciation?
Let’s talk about the types of data I collect, how I use it to answer these questions, and where you can find similar data. MARKET TYPE To know whether I want to buy and hold properties for the cash flow or just get in and out for a quick profit flip, I need to understand the historical appreciation a market has experienced. I want to know how much a market has appreciated since the data was first gathered in 1991 and especially how much prices have climbed since the 2009 trough. When I compare specific market data to the national average I can quickly see if high appreciation has pushed prices past the point where a buy-and-hold strategy makes sense. For example, when I look at numbers for Rust Belt markets like Detroit and Cleveland or bread-bas- ket markets like Kansas City and Topeka, or even deep south markets like Huntsville and Montgomery, I see that they have appreciated much less than the nation as a whole. This tells me that I need to look further, at additional data, to zero in on mar- kets I might want to invest in. Five- year, one-year, and 90-day trends show me if investing in a market still makes sense or if I’ve missed the cash flow party. If the data shows average or high- er-than-average appreciation, I take a different path — one that looks for flip opportunities in markets that
Before I dive into renovating a property, I need to know if the need- ed level of renovation will leave me enough room to make the cash flow I want. The percentage that fore- closed properties in a market are selling below non-distressed assets is the indicator I need. So, if distressed assets in a mar- ket are selling for 58 percent below regular market sales, I know I have room to renovate and remain com- petitive. However, if another market’s data shows foreclosures selling at 26 percent below non-distressed sales, I know I will be very limited on my abili- ty to perform significant renovations. Finally, to determine the market type, I need to know something about market price histories. I look for price data for the year 2000, spring of 2007, summer of 2009, and the current quarter. This allows me to spot bubble markets and to eliminate them from consideration as buy-and-hold targets. It also tells me if even flips may be too risky. For example, San Francisco peak- ed at $825,400 in 2007, dropped to $402,000 in 2009, and has climbed back to $1,600,000 in 2018. Knowing this can help me decide to 1031 ex- change properties in that market and
make rising prices a springboard to quick capital gains. As I look for markets where a buy- and-hold strategy will lead to passive income, I next look at median home age. I want to know about a market’s growth spurts and what they tell me about possible renovation levels and potential deferred maintenance. I also want to know what age of rentals po- tential tenants will be wanting. I don’t want to buy 70-year-old properties if renters would rather live in 30-year- old properties and those newer prop- erties are readily available. For example, my data shows me that in Scranton, Pennsylvania, 57 percent of homes were built before 1939 and the median home age is 74 years. Compare this to what my data shows for Fayetteville, Arkansas. In Fayetteville, 55 percent were built after 1990, and the median home age is 21 years. While I might be able to make a buy-and-hold strategy work in either market, this data tells me that a home built in the 1940s or 1950s in Scranton would be compet- itive in the rental market. Whereas in Fayetteville, a 75-year-old cash flow property might be in a D or F neighborhood rather than a C+, B-, or even B neighborhood. This data keeps me oriented if I am consider- ing both newer and older markets.
MY TAKE
Dig Deep with Data to Find Your Next Investment Market
BY JARED GARFIELD
Y ou’re waiting at your dentist’s office and you see a financial magazine. The headline grabs your attention — “Top 10 Markets for Real Estate Investors.” The article lists markets with rising rents and mar- kets with strong appreciation. But, it is of little help because everyone knows that past performance is a shaky foundation for tomorrow’s in- vestments and predictive data with- out context can be more dangerous than helpful. If you are part of or want to be part of the new wave of investors
using online data to make spot-on investment decisions, you need data that will give you a clear line of sight to the proper conclusions. You need data that helps you pull the trigger with confidence when you’re ready for your next deal. The type of analysis such data promotes is not for hedge fund man- agers alone. In fact, the same data I use to make decisions for the funds I work with is the data you need to zero in on personal investments. Trusting partners and providers is good, but verifying your decisions
with primary source data is better. I use a spreadsheet packed with more than 50 columns of data. Much of this data is available to anyone. The data helps me answer five key ques- tions about each market I look at:
1. Is it a cash flow or flip market?
2. Is there enough supply and enough demand? 3. Is there room for the profits I require?
4. Is there sufficient rental demand?
24 think realty housing news report
january 2019 25
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