Buying real estate has a lot less risk than investing in the stock market. It’s one of the reasons why so many people love buying and selling real estate.
It’s also part of “The American Dream.” So many people want to buy a home, but few people truly understand the real estate market. That could create a situation where you have negative equity in your home, simply because you bought your dream home at the wrong time.
The good news is that real estate doesn’t have to be complicated. You just have to read on to learn the steps to understand the market.
- All Real Estate Is Local
You’ll see a ton of information about the real estate market as a whole. Each indicator is used by economists and real estate investors to determine if the economy is healthy and if the real estate market is a good one.
You’ll see reports about housing starts, new home sales, regional average sales prices, and construction spending. These reports will give you a macroeconomic perspective of the real estate market in the U.S.
Those reports are good for some investments, but you still lack the information you need to make an informed decision about a property. You see, all real estate purchases need to be analyzed at the local level.
Property prices are going to vary by neighborhood, and this is something you need to know when you look at properties for profit.
- Real Estate Lags Behind Other Economic Factors
It’s entirely possible to think that the economy is going great until the stock market drops. The good thing about the volatility of the stock market is that it can be a warning sign for the real estate market.
Real estate is seen as a relatively stable market, meaning that there aren’t severe highs and severe lows in a short period of time. Since it’s a stable market, it’s the last market to react in a bad economy.
The first thing to drop is the stock market. You’ll then see businesses impacted and layoffs. These things will eventually trickle down to the real estate market.
The good news for you is that it’s easier to predict drops in the real estate market, so you can take the time to prepare and protect your investments.
- Practice Running Market Analyses
One of the other surefire ways to know the real estate market is to practice running analyses on different homes. Pick a random home that you would love to buy.
Gather as much information as you can about that property. Look at the last sales price of the home, the assessed tax value, and the prices of the comparable sales in the area.
These various data points should give you an idea as to what the property is worth. If you plan to rent the property, you’ll then need to run a rental analysis to see if the value of the home will generate a return on investment. Repeat this process several times.
- Get to Know Real Estate Agents
How can you be sure that you understand the real estate market? Talk to people who know more than you do. Whether you’re a novice or a seasoned investor, there’s always something to learn.
Get to know real estate agents in the local marketplace. They live and breathe real estate and can be a valuable resource as you learn about the market.
You can also seek out other real estate investors because you can learn about various investing strategies and discover new ways to make money in real estate
- Get Involved in the Business Community
You can learn to understand your local real estate market better than anyone simply by following the latest business news. This will be an indicator of how the local business market will impact the real estate market.
For example, thanks to COVID-19, millions of jobs have been lost so far and thousands of businesses shut down. This will impact the local rental market and the real estate market.
Commercial real estate investors may lose money because businesses could no longer afford to pay rent. It may take a while to attract new tenants to those empty spaces.
On the rental front, people have lost their jobs and may be unable to pay rent. The CDC announced a national eviction moratorium, which helps tenants stay, but landlords will take a financial hit in the meantime.
The more you are involved in the local business community, the earlier you’ll hear about these factors. You’ll be in a better position to respond to the shifts in the market.
- Set Your Real Estate Goals
If you don’t have a goal for your real estate purchase, you might as well throw money out the window. About 7.5 million mortgage holders are underwater, meaning they owe more money than the house is worth.
By setting realistic goals for your real estate purchase, you’ll look beyond the features and the idealism of owning the home of your dreams. You’ll be able to take an objective view of the real estate transaction and make sure that you’re financially sound because of it.
- Find the Places That Have Data
The world has become more data-driven, and it’s become much easier for organizations to collect data on real estate. You can check to see which organizations collect data in your target area.
This is helpful if you want to relocate or invest in a property outside of your local area. The place to start is with the local chamber of commerce. You’ll be able to get information on the local business community, area demographic information, and some real estate data.
The area’s visitor’s bureau will also fill in some of that general information. You can then get in touch with the area’s mortgage brokers and local bankers, building and planning commissions, tax offices, and builder associations.
All of this data will help you understand the real estate market that you have never set foot in. You’ll be able to look at home values, tax rates, and the rate of new housing projects.
- Know What Improvements Will Bring a Return
This applies to all real estate buyers who plan to fix up a property to sell down the road. A part of understanding the real estate market is knowing what improvements will increase the value of the home.
Some of that return on investment is driven by customer demand. Other improvements that are more expensive, will increase the value of the home because new homeowners won’t have to do the improvements themselves.
Then there are small improvements that deliver big results. Think about all of the little things that you can do to improve the curb appeal of a property. A fresh coat of paint on the door or the exterior of the home, colorful landscaping, and a welcoming walkway can make people fall in love with the home instantly.
Before you make any improvements to your home or take on big renovation projects, you have to calculate how much that will drive up the sales price.
- Develop Your Investment Strategy
What do you do once you understand how to read the real estate market? You develop a strategy to make a purchase. This will work whether you’re buying a second home, investment property, or your first real estate purchase.
For example, if you’re going to buy a home for the first time, you want to make sure you have a home that fits your needs. You also need to make sure that you don’t wind up with an underwater mortgage in 10 years.
Your goal may be to start with a small property and resell it in five years so you can get a larger home and start a family. Your strategy will be to buy a home in an area that is expected to see population growth over the next few years.
Not only that, but the population growth will need to be full of people who want to buy a starter home, such as a recent college graduate. If the growth is driven by young families, they’ll need to have a larger home, leaving your starter home on the market.
Your real estate strategy will be completely different if you’re a commercial real estate investor. The most important thing you can do is revisit your goals, which will help you develop a strategy.
Finding a Home in the Real Estate Market
How can you tell what’s happening in the real estate market? You need to know the difference between the different real estate economic reports and what they mean. You also have to keep an eye on what’s happening locally.
The more you learn at the local level and practice analyzing homes for yourself, the more prepared you’ll be to invest wisely. Are you ready for more articles to help you get the most out of your real estate investment?
Head over to the Home Improvement section of this site.