Understanding Your Market
As you start to get in this game, on of the first things you need to understand is your market and who you are targeting. This is important because you want to give yourself the best chance or opportunity to make money. So knowing your market can help you sell more real estate.
All markets throughout the country are different. But that’s ok, the important thing is to know what types of properties to target. For now, you want to target entry level homes in good neighborhoods. The reason is simple. More buyers.
80% of homes that are being bought and sold on a monthly basis are entry level homes. This is what the majority of people can afford.
So naturally it makes sense that you want to target these types of homes because you want to sell your properties quickly. Targeting the majority of people gives you better odds of selling the home.
Most of the homes we will be focusing on for this discussion, will need some sort of repairs. On occasion you may come across one or two in your research that are in great condition, however, the reason this strategy works so well is because you can get some great discounts on homes that need repairs.
So that’s why you’ll be focusing mainly on homes that need some repair as well.
See the idea behind this is that you will flipping your deals to investors, rehabbers and landlords. You won’t be doing any of the rehab, you’ll let them take on that responsibility.
Maybe over time, once you get a few deals under your belt, you can rehab a few if that excites you. This is another reason why you want to focus on entry level homes. Most people who rent, rent entry level homes because they are more affordable.
Investors and rehabbers also know there are a ton of first time home buyers looking for great deals. And as long as they can buy at the right price, they know they can sell them to these first time home buyers and make a nice profit.
So they like to find these entry level homes and fix them. They are perfect buyers for your deals and they usually have cash.
Like I said earlier, all markets are different. They also change. Entry level homes in one area of the country might be $100,000 while in others it’s $500,000+. It’s all relative though. It’s all based on demand, income and scarcity.
In Hawaii, there are fewer and fewer places to build and the demand to live there is high. So you’ll pay a premium for an entry level home on the ocean.
It doesn’t matter though, because after it’s fixed up, the marketplace will pay more for it. So, no matter what market you are in, don’t be discouraged by price.
Location, Location, Location
What’s more important is the location. The location of the property does affect the sale-ability of the home. A good example is war zones. You DON’T want to buy properties in war zones. I don’t care how great the price is. It’s just not worth it.
For those of you who don’t know what a war zone is, these are certain areas where crime is very prevalent. You can’t walk down the street for fear something might happen to you.
There is no safety or security. No one, who knows the area, would ever rent or live there, which is why you simply stay out.
There might be a few markets, in general, that don’t have areas like these, but most markets do, so it’s important to know where they are at. The best way to know where these war zones are located are real estate agents and law enforcement officials.
I would first talk to a few agents and ask them what zip codes to stay out of. Then ask where they would feel safe raising kids.
Remember, you are flipping to investors and landlords who’s goal is to keep as a rental for long term cash-flow. They too know the areas not to invest in, so chances are your buying pool will be significantly reduced if you buy in a bad area.
Once you have a pretty good feel of the market and know what houses to focus on, you are ready to start looking for properties.
Next time, I will cover several options for finding homes, but before we go there, I want to give you a little taste of where I’ve been finding some great deals…
Specifically tax deed auctions. This is where I’ve been spending a lot of my time lately and it’s been extremely good. There are only a handful of states that do these types of auctions and most of them are online so you don’t have to travel to bid on them either.
It’s always a good idea to see the condition and neighborhood of the houses before you ever bid, but most of the work and research is done online before you ever go to check it out.
There is also a strategy that I’ll talk more about where you can find left over money at these auctions from homes that were foreclosed on. Very very lucrative strategy.
To save time, you can also hire someone (like a birddog, agent, property mgr) to go out to all the properties you’ve researched and take pictures of them and give you feedback of the neighborhood.
It will cost some money but will probably be cheaper than a plane ticket, rental car, gas, food and hotel for a few days. I’ll share more on this a little later in our discussion.
I used the picture above in this post to give you an idea of what I’m talking about when I say “good deals” at auctions. I purchased that house for just over $500.00 and after $5000 in rehab, it rents for $600/month. So I’m into it about $5,500. It’s a great rental unit and worth about $40,000 if I was to sell it. That’s exactly what you are looking for. More on this next time…
If you have any questions or comments about understanding your market, let me know below.