Do You Really Understand The Real Estate Market?
In this article I’d like to address one of the most important real estate investing basics that is being grossly misunderstood...
And that is understanding real estate markets. All too often I hear investors generalize the market by saying, both “the real estate market is really doing good” and “the real estate market is really doing bad.”
In fact, just recently, one of my private investors who is helping fund a $1.2 million dollar spec build project that I’m getting ready to start on said to me...
“I’m concerned about new construction. I’ve heard 2 people tell me recently that new construction is entering a bear market and demand is declining.”
Here was my response...
“Investing is deal and market specific. To generalize that new construction is a bear market is not accurate. This deal is in a strong market where we’ve established a strong presence. Comps are recent and all on the same street. This is a very desirable high-end area and all homes are new. We are being extremely conservative at the million-dollar price point considering most homes are in the $2-3mm price range in this neighborhood. I build a very custom, luxury home and the LTV is strong.”
My point to her and the point I hope to make in this article is that the real estate market cannot be generalized and varies from market to market and even from neighborhood to neighborhood.
Don’t get me wrong – it’s good to watch the real estate trends from a national level and anticipate how the economy, stock market and unemployment may affect the housing market in general, but when it comes time to do a deal, I want to know what’s going on from a stone’s throw away.
In the markets where I do deals, I look very closely at sold and active comps directly in the immediate area. I look at style, layout, design, location (does it back up to a busy road).
Check out this new construction house that we sold for $750,000 in the first 2 weeks it was on the market!
The example I used above, we analyzed the subdivision but most importantly the very street where the lot is located. There were 3 recent comps within a few hundred yards that we used to determine the best possible design, build cost and sale cost.
So the next time someone asks you, “how is the real estate market?” You can answer accurately by saying,
“It’s appreciating and depreciating. Which market were you asking about in particular?”
Leave a comment and let me know how the market is doing in your back yard...
Until Next time, Happy Investing,
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