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Real Estate Investment - What Statistics are important to know and understand
Dated: January 26 2021
January 2021 Blog 2
Real Estate Investment- What Statistics are important to know and understand.
How do smart investors quickly determine what properties they should pursue and what properties they should dump and when? There seem to be some people out there who no matter what they buy, make money. Is it through trial and error, a game of chance, or is there an actual formula an investor can use to ensure the property is going to be profitable before it is purchased? Real estate ownership can be a risky business. There are ways to mitigate that risk through education and understanding of your local real estate market, but what is important to know? What are the key indicators that you should buy, sell or hold a property?
In this blog post, I am going to layout 3 fundamental statistics you should know about your real estate market before you invest.
|How much inventory is available in your target local market?|
This can be a 2-edged sword, but it is vital that you understand the current inventory availability in your investment area. Inventory stats determine if there is a buyer or sellers’ market in the area you are looking to invest in. If there are less than 3-months of inventory available, you need to understand it is a sellers’ market. The likelihood you will be the only offer when you go to purchase the property is decreased.
You need to build the likelihood of competing offers into your acquisition strategy if you are purchasing and your pricing strategy if you are selling. For every property you determine you want to purchase, you need to decide what is your “do or die” price point. If you are selling, it could be wise to list a little lower to attract buyers who are expecting to compete. In some markets the lower you list, the higher your sale price can be.
If there is over 3-4 months inventory you could be in a balanced market where you can expect there may be some room for negotiations on properties and you will likely be the only offer unless it is a super-hot property. However, you will likely pay close to the asking price to succeed with your offer.
Anything over 6-months of inventory and you are generally in a buyers’ market. This means it may not be time to sell any inventory you have, but you can generally negotiate asking prices and possibly find some excellent real estate deals.
Average Days on Market
The next metric to look at is the average days on market, this indicates how long a property is usually listed before it sells. If the average days on market for your area is 30 days and you come across a property that has been sitting on the market for 90 days there are a few things you should consider. Is there something wrong with the property or location that is scaring buyers away? Is it simply overpriced but a great property and maybe the seller will be negotiable at this point? Is the property overlooked by the market or just not presented as nicely as it should be? There may be an easy fix and a good deal to be had. If the property has just been listed on the market there is often less room for negotiation, especially in a hot sellers’ market. If you find the perfect investment property and you are concerned it will sell fast, you should create a strategy based on the value of the property to you. What are you willing to pay if you need to compete? I always say, come up with a price that makes you feel good if you acquire the property, and good if you lose in the competing offers.
The Average Price Per Square Foot
The third statistic we are going to look at today is the average price per square foot. It is always wise to work with a Real Estate Professional who can help you with comparable sales of similar properties in the area. This will assist you in finding an average square foot price more local to the neighborhood and even house style and condition in the area. However, you can look at the average price per square foot and a basic guideline. In a market of competing offers, it’s important to know you are not overpaying for a property. This metric can be a good gauge. If the property you are looking at is above average then understand you pay a bit more. If it is below average you should expect to pay a bit less. This number is by no means a concrete representation of all properties but will assist as a loose guideline.
I hope these tips and tricks were helpful as you move forward with your investments. Every month more tidbits of information will be shared to help you navigate the Real Estate Market to your benefit as much as possible. These monthly statistics can be found in my newsletter. Sign up here so you can stay on top of your game.
**This information is not meant to be thorough real estate investment advice; it is information mixed with opinion. Please contact me, or another registered agent for advice on your individual real estate needs. This article is not intended to solicit clients under contract with a registered real estate agent.
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