Latest / Cash Flow for Life / Chapter 9: Market Research for a Sound Investing Foundation
Transcript
- 00;00;00;05 - 00;00;32;09 Chapter nine. Market research for a Sound Investing Foundation. One major difference between a mediocre real estate investor and an investing star is market knowledge. It can seem a bit overwhelming at first because there is a lot to learn and the market is constantly changing. However, market research doesn't need to be a daunting issue in today's world of computers and the internet, and connectivity knowledge has never been more accessible to the individual. 00;00;32;11 - 00;00;56;04 Nor has it ever been more available so quickly and efficiently than it is today. And it's just getting better. Lack of information is not our problem. There's actually too much information, and the sources in the internet are not always reliable. We're going to help you develop a research process that will give you what you need from sources that you can trust. 00;00;56;07 - 00;01;21;06 The Google Earth approach. It's really fun and impressive to use the Google Earth mapping tool to zoom in on an address, a technology that in the past seemed like it was only available in spy movies and by government organizations is now available commonplace to all of us. It really gets you from the big picture to you, right down to the street view of a building. 00;01;21;08 - 00;01;48;28 It's a great example of what you need to do to build a useful body of market research for your real estate investing success. Of course, the big picture is important. While world events do influence real estate in our local areas, starting our research from a national perspective is most useful. Ultimately, we will spend most of our time gathering information and researching marketing conditions on a regional and a very local level. 00;01;49;00 - 00;02;01;27 All of this is important information. However, local research will dominate our time and efforts. All real estate is local. So we're going to get really good at the local numbers. 00;02;01;29 - 00;02;32;02 World events and influence. While the United States and Canada are obviously big players in the world economy, events around the world can influence real estate markets right here in North America as our stock and bond markets are affected by world events. They also have a profound influence on interest rates, including mortgage interest rates. So it's important to at least pay attention to worldwide events that can create movement in stock and bond markets. 00;02;32;04 - 00;03;05;20 Also, because many arm interest rates or variable interest rates are based on bond and other market benchmarks. Having a big picture view of world events is all a part of your market research. For this category of research, just keeping up with the news is usually enough. We want awareness here, not perfection. When you're watching an international news report, notice how many times the commentator mentions the effects of these that the world events will have on stock and bond markets and interest rates. 00;03;05;22 - 00;03;32;24 Or you can watch reports on something like CNBC or other financially oriented networks and get the financial side of the world as we see it. This global view is one piece of the market research puzzle, but real estate is so local. So remember to keep the international news in perspective. National real estate market research and news. With a very long common border between the United States and Canada. 00;03;32;27 - 00;04;03;03 It's interesting to contrast the two real estate markets during the US real estate and mortgage problems from 2006 to 2011. Canada experienced strong demand and rising prices in many areas, while the United States was in crisis mode, with falling home prices in most areas of the country. So even with the proximity of the two countries, you can readily see at any time, there can be very different trends emerging or entrenched in the markets. 00;04;03;06 - 00;04;33;27 National real estate trends and events are quite important to local markets. Demand and supply issues aren't the only factors influencing real estate sales volumes and price in local areas. Even in a market with strong demand, if financing is difficult due to the national mortgage banking issues, then many would be buyers won't end up buying. Let's look at some resources for national real estate trending and sales statistics in the United States. 00;04;34;00 - 00;05;15;08 There are comparable organizations and resources in the Canadian market as well. And a quick Google search will find you the resources you're looking for. National Association of Realtors at w w dot realtor NWWW dot Realtor.com. There are reports, statistics and surveys released regularly by the National Association of Realtors and other national realtor bodies. There is value in this information, but be careful to place the proper emphasis on it, because this is a trade organization promoting the interest of its professional real estate members. 00;05;15;10 - 00;05;40;08 So there may be a slight bias sometimes. Watch out for that. In the next chapter, we'll talk about searching the internet and other resources to find property information. This chapter is about keeping up with the trends and learning about real estate news. Rather than finding a property in a certain area at a certain price. We're starting high level, and we'll continue to drill down as you go and learn through this book. 00;05;40;11 - 00;06;03;20 The Na does some interesting surveys of what buyers look for in properties, and this can give you good information about what renters are looking for as well, and help direct your search. Regional and local real estate markets. We've zoomed down from a global view then to a national look at market research. Now it's time to zoom even more. 00;06;03;25 - 00;06;33;00 Let's get more regional and local, which is where the bulk of our research will be concentrated. It's an old, though accurate axiom that real estate is local no matter what's going on internationally or nationally. There is always something unique about a local area that will dictate and direct the real estate market there in that specific area, whether it's a new major employer locating to the area, or the lure of vacation and resort type amenities. 00;06;33;04 - 00;07;02;00 There's something unique about every area. Local government initiatives, as well as public and private investment will determine, in large part, the strength of a local real estate market. Tax incentives to do business and developers play an important role in the strength of local real estate markets as well. Local business organizations and publications are the first resource for real estate news and market information. 00;07;02;03 - 00;07;31;13 Real estate investment clubs bring together mortgage brokers, bankers, appraisers, surveyors, real estate brokers and others who have day to day dealings in the market and a current perspective on trends. When we discuss selecting your first team member, we went into detail about the market information services available from tech savvy real estate professionals. While some areas have public disclosure of property sale prices, many areas do not. 00;07;31;15 - 00;08;01;10 Email alert. Reports of sales from MLS are an invaluable resource. Once the agent sets up the alert reports, it's automated so the agent shouldn't mind doing it at all. Absorption rate. It's a good time to discuss a market measurement that helps us get a picture of the current inventory of unsold and listed properties. It's called absorption rate, and it's an excellent measurement for you to develop to use on a regular basis, probably monthly. 00;08;01;12 - 00;08;28;14 The simplest explanation is that absorption rate is the rate at which inventory or houses for sale are being sold off in relation to how fast the inventory or houses for sale are coming on the market. It's a really easy calculation if you have the numbers to do it. So start by choosing a time frame, maybe monthly or every six months, or even a year, and find out how many homes have sold in that time period. 00;08;28;16 - 00;08;52;29 Let's say that we're going to track the absorption rate based on sales over the last six months. First, get the number of homes sold in that period and divide it by six. This is the number of months being measured. Then we get the total number of current listings. If 600 homes sold in the last six months, then 100 homes are selling on average each month. 00;08;53;01 - 00;09;26;08 If we have 700 homes currently listed, then we have seven months of inventory. Our absorption rate is 100 homes per month and we have seven months of supply. Tracking the current number of months of inventory can give us a snapshot of how things are going, and maybe even allow us to predict market movement. If our inventory has been holding steady seven and eight months of homes listed since, suddenly having a month or two with only six months of inventory could signal a market improvement. 00;09;26;11 - 00;09;56;07 More homes are selling or fewer homes are being listed. Either way, supply is decreased, so the market will likely see some upward pressure on its home prices. If you're receiving regular sold property reports from a real estate agent, you'll have half of what you need. Now, all you'll need to know is how many homes are currently listed. Get this information once a month or so, and you'll have a snapshot of how the market is moving tracked over time. 00;09;56;12 - 00;10;27;26 This can give you some pretty interesting predictions. All column of where the market is going. Government initiatives and development. Some of the most valuable information you'll ever get is information about local plans for development or government initiatives that will affect employment, zoning or property usage. Let's say there's some land owned by the county, state, or the province that is underdeveloped and pretty much just a wooded area. 00;10;27;28 - 00;10;58;25 The county meets and decides to convert it to a greenbelt and park area with paths for walking and biking, as well as a small body of water for activities. There will also be tennis courts, soccer fields and other group sports facilities. Two trends in housing come into play here, with the cost of vehicle fuel constantly rising. People tend to gravitate to areas close to work and play, so a green area with recreation like this will normally be a draw for surrounding development and housing. 00;10;58;27 - 00;11;21;06 The second trend is the desire of government to prove its decisions have been good ones. There will likely be favorable zoning and development initiatives in this place to encourage building in the areas around our new green park. They want housing there, and maybe there's already a great deal of housing in this area, but it's older and it's in need of improvement. 00;11;21;08 - 00;11;46;07 This is a great time to look into purchasing rental properties in anticipation of a renewed interest in the area, rapid improvement of properties there, and increase in property demand. The more you know, the more you profit. Don't be one of those investors who looks back and says, if only I'd known that there are very few surprises in real estate development. 00;11;46;12 - 00;12;09;28 There are normally signs indicating change, such as new road construction or fund appropriations for government use of land. Also, municipalities often just have an official plan that tells you exactly where development is going to be, what type of development, and what the density is. Keep up with local businesses and government news and join your local version of a chamber of Commerce. 00;12;10;00 - 00;12;33;12 It's easy to jump into deals after the general public is totally aware of what's happening. It's a little harder to be on the front end and it takes more awareness, but it's a lot more profitable. You won't have a crystal ball, but if you use some of the land use policies and some of these techniques, you'll have a good idea of what's being built, where and where the population may be moving. 00;12;33;14 - 00;13;01;19 Action steps one. Develop your print and major media resources for national and local real estate news and information. Two. Do the same for the online resources. Begin to build a file or database of notes, information and statistics that you receive from your research sources that you consider important. Find the websites that are most important to you. Bookmark them on your toolbar. 00;13;01;21 - 00;13;20;15 Make them your home page. Whatever you can do to be immersed in the real estate. Three. Learn about any local organizations you can join to keep up with current real estate trends. There are so many online organizations you can join as well. You can get started at. 00;13;20;17 - 00;13;35;14 What's next? You'll be able to start getting your feet wet and locating properties. We're going to give you the resources for finding the best deals for rental property purchases before the competition does.