How Do I Know My Real Estate Market is Profitable?

Every real estate market can be profitable. But, every real estate market can also be a loser. All long term real estate investors know it is all about understanding your market and buying properties in neighborhoods with as many positive factors in place as possible. That is the best way to ensure profitability.

It is important to recognize that a real estate market can be defined many ways. It can be defined broadly and be made up of many cities, towns and neighborhoods or it can be defined very narrowly as a single neighborhood with its own very distinct characteristics. As a real estate investor it is important that you have both a broad and specific understanding of your market. It is good to have a general understanding of the larger market (e.g. – Philadelphia, suburban Philadelphia, Montgomery County, South Jersey) but it is more important to understand the more granular market (e.g. – Doylestown, Abington, etc.), even down to the specific neighborhood.

This illustrates an essential truth about investment properties: You need to go in armed with information. Today we will discuss investment properties with the assumption you are purchasing a property to sell. Here are some of the signs to look for when determining whether you’re dealing with a profitable real estate market.

1. A rising population

A real estate market with a declining population is never a good sign for someone looking for new investment properties. An area that has an increasing population is one that’s going to see more demand for housing.

2. Local attractions

People want to live in places where there are things to do, places to shop and those things are easy to access. A profitable real estate market will typically be close to attractions like movie theaters and music venues, as well as public facilities such as parks, libraries, and hospitals.

And those things should be easy to get to. A study by the Center for Neighborhood Technology found that being close to public transit can boost the value of a property.

3. A wealth of job opportunities

People go where the jobs are. If the area where your property is based is somewhere with a lot of employment opportunities, you can be assured you’ll have an easier time attracting renters (or new owners). If a major employer is moving into an area, you may want to think about buying up investment properties nearby to attract their workers.

Investing in an area with a healthy job market makes a lot of sense, but you should also make sure that the region’s economy is well-balanced, with many different employers and industries in the mix.

The cautionary example most people use is Detroit. That city lived and died by the auto industry, so when work in the car plants dried up, the city’s economy collapsed. Any market that’s held up by a single industry or employer puts your investment properties at risk.

4. Desirable neighborhoods

Searching on Wikipedia for the local community can yield a treasure-trove of interesting information about the area including history, geography, demographics, crime, climate, arts and culture, points of interest, government, education, media, and infrastructure (transportation, utilities, healthcare, etc). There are also sites like NeighborhoodScout.com and City-Data.com that provide lots of statistics about crime and other community-related information.

Schools are one of the biggest factors people consider when buying a home. Zillow uses the GreatSchools.org ranking of various public schools to help determine the quality of factors such as diversity, test scores, safety, and student-teacher ratio. High ratings are an important consideration to buyers.

Property and school taxes are also a very big issue. Buyers want to pay lower taxes but higher taxes are required to support the many amenities and services people want. Markets where you can see tangible evidence that tax dollars are being spent wisely are always going to be better areas to invest in.

5. An attractive price

Zillow typically offers a heat gauge for most markets indicating whether the market is currently cold-cool-warm-hot. If you look at a unique property address in Zillow there is usually a Neighborhood: Zip Code dropdown. This drop down usually includes a Market Temp gauge indicating whether it is a buyers’ or sellers’ market. The Neighborhood drop down also includes a median price for the neighborhood. As an investor, it is typically a good idea to be selling at a price lower than the market median price. Generally speaking, the higher above median you are selling; the more difficult it will be to sell. It is always good to be the lowest priced property in an expensive neighborhood.

If you’re looking for help in gauging the health of your local real estate market, turn to the Diversified Real Estate Investor Group (DIG).

For the last 40 years, DIG has worked with real estate entrepreneurs to give them the skills they need to cultivate practical real estate investment knowledge through education, discussion and networking.

We usually hold general meetings on the last Thursday of each month. Occasionally there are exceptions so please check out our calendar to find out more information about our next meeting. You can attend your first DIG meeting for free, so come see what we’re all about.