Signs That You Should Find A New Investing Market
By Paul Esajian on October 25, 2019
Your primary investing market is one of the biggest influences on the success of your investment. You can have a great physical property with plenty of modern updates, but if the market is soft you won’t have the return you anticipate. On the flip side, if your market is strong demand will be high and you will be much more successful. With any market there are a handful of key indicators that you need to be on the alert for. Staying one step ahead of the market allows you to find good deals you can turn over without significant delay. Here are five signs that you may need to find a new primary investing market.
- Limited Opportunity: There are deals to be found in most every market. However, some markets are much more abundant than others. Limited opportunity alone does not make for a poor market. In fact, with just a little diligence you may be able to separate yourself from the pack. What makes poor markets soft is the ability to find good deals. As an investor the goal isn’t to simply put your name on a contract. You want do make a positive return on your investment. If the market doesn’t have a ton of distressed sellers or supply exceeds demand you won’t have the upside you desire. You will end up working just as hard, if not harder, only to scratch out minimal profits. There is nothing wrong with making a little less on a given deal, but the return should be in line with the risk. If the market has limited upside potential it may be time to look somewhere else.
- Slow Turn Times: As a full time investor you understand the importance of turning deals over as quickly as possible. Every day you own the property you are on the hook for a variety of carrying costs. You pay the insurance, taxes and utilities until you sell the property. You also have to worry about negative changes in the market that can impact the list price. Not to mention the fact that not selling a property can restrict you from other opportunities that become available. It is essential to always turn your deals over as quickly as possible, which is often the case if your market has a deficiency of buyers. Regardless of how nice the property looks or what you list the home for, you are at the mercy of the market. Instead of negotiating the best possible terms, you will often settle for the first halfway decent offer that comes along. Your ROI will be dramatically reduced and you will sour on looking for deals moving forward.
- Poor Demographics: There are a number of factors that influence the strength of a market. Most people only see sales data and use that as a final determination of a market. Sales numbers are obviously important, but they are usually just a byproduct of other influencer. Buyers want to live in areas with low crime, high employment and low taxes. In many cases these items are more important than an extra bedroom or a nice fireplace in the living room. If properties are staying on the market longer or selling for a reduced number you should dive into the local demographics. Find out of a major employer is slated to leave the area or if the town is proposing a tax hike. See what you can find out about the state of local schools or if there has been an uptick in foreclosures. These items may not play a major factor in the next 30 days, but in six months or more they will have a huge effect on the local real estate market.
- Limited Team Building Options: There are many ways to build, and run, a real estate investing business. What cannot be understated is the impact that your team has on your success. Regardless of how hard you try building a team is just more difficult in some markets. Every investor can use a good real estate agent, mortgage broker, contractor, property manager and attorney. With those team members in place it will allow you to focus on finding deals and do whatever it is that you do best. If you can’t build a team you will spend your day scrambling to do put out fires. It is not enough to find someone who you think can do the job. You need to be able to build a relationship and trust that they have your best interests in mind. Not every market is flooded with people who can do the job you need to get done.
- Reduced ROI: As we stated, there is nothing wrong with making a little less on a given deal. Not every opportunity you are involved in is going to be a home run. However, in a bad market it gets to a point that the risk does not equal the time and financial outlay. Making a profit in bad markets requires almost everything you do to be perfect. You need to get the property at the exact number that works for you, do the right work and find the right price to list at. Even if you do everything right there may not be a ton of potential profit. If this is the case you should at least explore the option of looking at other markets and seeing what else is out there.
Your investing market is the single biggest influencer on the type of return you can anticipate. As difficult as it may seem planting your flag in a new market does not have to be overwhelming. At some point you need to get away from a bad market and give your business the best possible chance for success.