Market Analysis

Question 1

Sources of data for market research

Answer 1

Local newspapers

The National Association of Realtors

Government sources: US Census Bureau and US Department of labor, The Federal Housing Finance Agency (FHFA), the FHFA House Price Index

Online listing services like Zillow, Trulia, and Redfin

Services like NeighborhoodScout

Question 2

Days on market (DOM)

Answer 2

How long an average property is on the market before it sells.

Can be used to assess the status of an individual property or to determine the average DOM Dash which provides perspective on an area’s overall market

Question 3

Rent control laws

Answer 3

Laws in certain communities that strictly govern how much rent can be raised each year (research if your target market has these kind of restrictions)

Question 4

Price to rent ratio

Answer 4

Compares the home price and rent value to evaluate potential profitability of an investment. For individual home, divide the purchase price by the total annual rent. Rule of thumb is to consider buying when the ratio is less than 15 (for residential?)

Question 5

Capitalization rate (cap rate)

Answer 5

Cap Rate =Expected NOI/ Property Value
Property Value = NOI / Cap Rate

Rate of return you expect to get on your investment (not including financing/mortgage), determined by the type of property.

Expected cap rate typically depends on the market. A lower cap rate often corresponds to better valuation, higher potential return, and lower risk.

Question 6

Indications of a buyers market

Answer 6

More supply
Less demand
Areas with struggling economies

Question 7

Indications of a seller’s market

Answer 7

Less supply
More demand
Cities with growing industries and lots of jobs

Question 8

Path of progress in cities:

Answer 8

direction in which it is expanding. Focus efforts here for greatest potential profits

Question 9

Revitalization zones:

Answer 9

Areas of city that have been neglected where cities target to bring back up to standards by incentivizing redevelopment.

Call city hall and ask them for their Master Plan to see where they will be investing money and then see how well they are following the plan by taking a look for yourself. Don’t be the one of the first investors in these areas - too much risk. These are great areas of opportunity though.