How to Get Started with Real Estate Investing
One of the first things that you must do to get started as a real estate investor is to know what is taking place in your market. If you do not know what is happening, how can you know what you should be doing as an investor? You need to approach your real estate investing business as a business. Think about this for a momentâ€¦
When a new major company is looking to open a brand new location in an area, they will do their research beforehand. They are going to do some demographic research and find out if the location for the store would be successful. In a similar manner, you are going to need to do a little bit of research so that you can take a targeted approach to this business.
Once you know what is happening in your market, you can adjust your strategy accordingly. Based on what is going on in your area, will lease options be a good strategy? What about wholesaling or rehabbing? Each of these strategies work better under certain market conditions and when you align your strategy with your market conditions, you will increase your success dramatically.
So, the real key is to know what the key indicators are that will give you the right information.
Jobs Coming In - Employment is a key factor that drives the market for real estate. Generally speaking, people will want to live nearby their employment. So, as jobs are moving into an area, this will increase the demand for housing and rentals. If the area does not have many jobs coming in, you will also see a decreased demand. Since the real estate market is controlled by supply and demand, the number of jobs coming in to an area gives you a very good idea of the demand. You have to know this to know what is going on in your area.
The city planner will be the person to contact for the number of jobs coming in. They will be able to tell you how many companies are coming in, how many jobs this will create, and what types of jobs they will be. They can also give you an idea of when the jobs are coming and where these jobs will be located. This is powerful information for you to know about. If the jobs are going to be lower end jobs, rentals will be in demand in the area. If they are mid-level to high level jobs, these people will be looking at buying homes in the area. This is how you will know the demand in your area for housing.
Occupancy Rate - A factor to understand the demand for rental properties in the area is the occupancy rate. Vacancy is a key factor to know whether rental properties are in demand in your area or not. This is another perfect example of why you must know your market prior to investing. If vacancy rates are very high for your area, investing in rental properties is not your best strategy. You would have a harder time to find a tenant. That is why when you are getting started as an investor, it is absolutely critical for you to do a little research prior to investing. This will save you a lot of time and heartache later on.
Property management companies will be your best bet for getting the occupancy rates in the area. If you give them a call, you can tell them that you are an investor and that you are considering some rental properties in the area. They will see you as a potential client and they will usually be happy to provide you with the information that you are seeking. Another alternative is to look in the newspaper each week to see the homes for rent section. As you watch this over time, you will also get a feel for the demand for rentals in the area.
Rent Incentives - Rent incentives can be a key indicator of the balance between the supply and demand for rental properties. As a general rule of thumb, the fewer rent incentives you see, the more demand there is over the supply. When the supply of rental properties is greater than the demand, you will see a lot of landlords offering some sort of incentive. They are trying to give a potential tenant a reason to choose their property over the rest of the competition. So, when you see a lot of rent incentives, it means that the supply of properties is greater than the demand for rentals. The incentives will be things like a low deposit, a few months of free rent, cash towards buying a home, or some other sort of offer to get them in the property.
You can find this information when you are looking at properties on the Internet, in the newspaper, or any other method where you can find them. The important part is that you see a lot of incentives. It will not just be one here or there.
New Units Permitted - When someone wants to build a new home, they have to obtain a building permit from the city. As a result, the city will have the information on how many new building permits have been issued over the last month and the last year. Every home that is built adds to the inventory. Since supply and demand are the factors that are driving the market, the units permitted are part of the supply. The new units permitted count towards the supply.
As an investor, if you see that there are a lot of jobs coming in (demand) and there are not very many units permitted (supply), then that means that you have found a hole in the market. You could start looking at developing some land and building new houses to meet the incoming demand. See how this information can help you get started on the right foot and see the opportunities in your market?
The city planner has the information on the number of new units that have been permitted. As you might have noticed, the city planner has a bunch of information that will be extremely valuable for you as an investor. It is highly recommended that you spend a little time with your city planner to know what is happening in your area. You can make a lot of money as an investor using their knowledge with your investing strategy.
Inventory for Sale - For this section, we are referring to the existing homes that are currently on the market. The supply is going to be determined by adding the new units permitted and the existing homes for sale.
The existing homes for sale are an easy indicator to obtain. Any real estate agent with MLS access can tell you how many homes are currently for sale in the area. You will also want to track this on a monthly basis so that you can gauge whether the inventory is going up or down. Remember, the market is governed by supply and demand and we want to track the supply and demand.
Average Days on Market - The days on the market is another key indicator to knowing what is going on in your market. The days on the market will tell you how long (on average) it is taking for homes to sell in your market. This will give you an idea of the activity of your market and how quickly homes are turning over. Market activity affects the balance between the supply and demand. The days on the market (DOM) can help you know how long it will take for the demand to catch up to the supply and vice versa.
The days on the market can also be obtained from your real estate agent that has MLS access. Let them know the areas that you want to focus on and it can give you that information. You will also want to track this monthly so that you can see changes going on in the market.
Now you can use this information to start real estate investing. This information will help you know what is happening in your market. It will give you an idea of the supply and demand. As a result, you will be able to tailor your strategy to your market and find pockets of opportunity.
As you track this information over time, you will also be able to see changes as they are happening. This will enable you to adjust your strategy to the markets as they change. Doing this research pays huge dividends and makes the difference between an average investor, and a great investor.
Kevin Melito is a real estate investor, consultant, and runs a company that offers training programs for real estate investors. He has created Real-Estate-Investing-Cycle.com to teach people how to invest in real estate. Hereâ€™s more about getting started with real estate investing. - Copyright: You may freely republish this article, provided the text, author, the active links and this notice remain intact.