Before sharing highlights of this week’s episode, let me say we had a blast interacting with you folks in person at our Dallas field trip event.
It’s always fun for us to hear about the deals you’re doing and shake your hand. Thanks to those who attended and the great vendors who treated us well. We’ll be back!
As part of our discussion with locals in the Dallas area, we were reminded of the importance of paying attention to the market – especially when you buy property away from where you live. This week we dish details about how to keep your thumb on the pulse of the market.
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Gradual Market Change Happens – Pay Attention
If you’re old enough to have gone to a high school reunion (especially one with a couple of digits), you’ll understand this.
Think back to your last reunion. Remember seeing your friends from high school and thinking, “Oh, they look so much older and so different”?
Guess what? They are looking at you, thinking the same thing.
The principle here is that it’s tricky to observe slow changes. Since we see ourselves in the mirror every day, it’s hard for us to notice differences that occur over time.
The same is true for the real estate market.
You owe it to yourself to make sure you’re watching and paying attention.
When you’re looking from afar at a market via screen, in the comfort of your pajamas at home, you look at statistics and reports on the news.
Keep in mind, mainstream media is generally slanted from the viewpoint of homeowners. One simple example: “Bad news” for tenants that rent rates are increasing, can be “great news” for you as a landlord.
The market could shift and you won’t recognize the change unless something wakes you up. Often, it’s a problem.
Go Beyond Data: Make Sure You “Kick the Dirt”
Rather than wait for a red flag to arise, make sure you “kick the dirt” as we like to say, or visit your market in person.
There’s a vibrancy you can feel when you are in a place. A vibe that gives you a gut-feeling about the people, the context of the surrounding area, and clues to the direction the market is going.
You will never get it on the Internet, although that’s a good place to start. Feeling the market is as much a part of your decisions as doing the math.
This isn’t some hokey “feelings” stuff – think about the biggest partnership decision you make – marriage. While you can have some data on your romantic interest: the types of ideals they have, the types of activities they enjoy, etc., ultimately you have to feel something special about them to make the commitment.
Let’s apply this to real estate and being an investor.
Say you have a fancy chart representing the demographic in an area. That’s nice, but you can’t feel it. You have to see it.
You go into the local Starbucks, the Costco. You see the people, the way they interact, the types of cars they drive.
Another example: Michael Becker, one of our Dallas real estate friends, shared this great six-page case study. It had all the data – measurements, floor plans, cap rates, etc.
Yet, we only had a small snapshot with his fined-tuned PDF.
When we walked through it, met his tenants, saw the cars in the parking lot, and stood outside the building, THAT’S when we really got it!
Remember, You Are in the PEOPLE Business
When you’re visiting the area, every person you come into contact with can be a resource.
From the barista serving you coffee to the Uber driver taking you to your hotel, ask questions.
I like to start broad: “What’s going on in the real estate market?” You can add follow-ups, things like, “I heard about this legislation – what do you think about it?”
When you talk to people who live there, you’ll get honest answers.
Also, pay attention to the job market in the area, as that affects the people who affect your bottom line.
If a big employer moves out and takes a chunk of their workers, it will trickle into the tertiary services – the laundry services, the grocery stores, etc.
Without a main industry, your tenants – and your investment – may feel an impact.
At the end of the day, you’re not even interested in the property. You’re interested in the TENANT. The property is just the price of admission.
5 Off-Site Sources for Local Market Information
We know you have a life. Checking in on the real estate market doesn’t have to take a lot of time. But it’s better to dedicate some time regularly than regretting it later. Here are five ways we recommend you keep the pulse:
- Local Chamber of Commerce. Their job is to sell the market, and they often put together annual publications sharing latest updates.
- Google Alerts. I’ll often do specific alerts for things like “economy+Dallas” or “properties+Dallas” so I see the news stories about those topics. You can set up as many as you want.
- Trade Journals. Get subscriptions to the trade journals covering your market. This gives you the high-level view of what’s happening.
- Your local team. When you’ve got a property manager and other team members set up in the area, call them regularly to see if there are any big indicators of change.
- Price checks. Using any real estate website, plug in your product type (say, 3-bedroom, 2-bath) and compare over time. For example, in Dallas we saw a house that was $125,000 and rented for $1,150. This year, the same house is worth $145,000 and rents for $1,345. If the rent had stayed the same, it would mean investors were chasing yield. You want to understand WHY the price went up.
Using both an in-person and online approach, you’ll know when it’s time to double down on buying properties or head for the exits.
If you haven’t attended one of our fabulous field trip events, where we experience the local market and bring together like-minded investors, we’d love to meet you.
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