How To Evaluate Markets - Plus, Our Top 5 Picks

Before you buy a property, you should know the real estate market in the area, especially if you’re investing long distances. You need to know if a market can provide the type of return you’re hoping for by investing in real estate.

Just because the market is great in one city, doesn’t mean it’s great in another, especially if you cross state lines. Fortunately, it’s easy to evaluate real estate markets using these simple steps.

8 Steps To Evaluate A Real Estate Market

1. Look At the Data
If you’re looking at homes in a particular market, do a quick Google search on the data in the area. Look for the answers to the following:

• How much did similar homes sell for in the area recently?
• What’s the rental market like? Is there a high demand for rental properties?
• What’s the area’s crime rate?
• What are the school ratings?
• What’s the average rent charged in the area?

Using the data, you can determine if an area is a good investment for you. For example, if you find out that the rental demand is low in the area, you should look elsewhere. Or, if the area’s crime rate is high, you may have a hard time keeping the home occupied.

But, if you find a property in an area with high rental demand, low crime rates, excellent, inUse schools, and average rent prices that make sense given your expenses, you should invest there.

2. Determine the Rent Versus the Purchase Price
Once you know the area’s average sales price and charged rent, do the math. A good rule of thumb is to collect at least 1% of the property’s sales price in rent. If you buy a property for $200,000, you should earn at least $2,000 in rent.

If that’s not feasible given the average rent in the area, you may want to look elsewhere unless the costs are much lower there. Crunch the numbers, find out the average cost of maintenance and repairs, real estate taxes, home insurance, and other essential expenses homeowners in the area pay. Will you have positive or negative monthly cash flow based on the average rent?

3. Use Multiple Sources to Get Data
It’s easy to rely on one source for your data, but that doesn’t always give you the answers you need. You want unbiased information - data that will help you make a decision.

Rather than relying on one source, check out multiple resources including the newspaper, community blogs or forums, Roofstock Marketplace, and other real estate websites that provide unbiased information about properties.

4. Look At the Demand
Demand will tell you a lot about an area. If you can’t get in to see a home or you hear there are already multiple bids on properties you want to look at, the demand is high and chances are it’s a good area. If so many people want to move there, the values will likely increase, even more, giving you a greater return on your investment.

If instead, you find that you aren’t competing with anyone else and you can walk right into homes you want to see, it may be a red flag. You want some competition, aka demand, so the home values are there and remain steady. 

5. Find Out About the Area’s Amenities
Whether you’re buying a house for you and your family or a rental property, you need amenities. You and your family need the comforts of home nearby, as do tenants you rent a property to.

Do your research and find out what renters in the area want. A few common examples include:

• Close to public transportation
• Grocery and household shopping nearby
• Shopping malls nearby
• A selection of churches
• Good schools
• Entertainment

If you aren’t sure of a property’s location or how it stacks up, use the Roofstock Marketplace Cloudhouse Tool to get all the information you need about a property and its area so you can make an informed decision.

6. Check Out the Property Taxes
Property taxes tell you a lot about a property’s feasibility. If you can’t afford the taxes or if the taxes dig too deep into your profits, it’s not the area for you. While high property taxes often mean it’s an affluent area with many amenities, it can also mean it’s impossible for real estate investors to remain profitable and is better suited for primary residence buyers.

7. Watch the Days on Market
The number of days a property remains listed on the market says a lot about the area and the home. If a home is on the market for a longer time than other areas, it could mean you’ll score a deal on the property if the seller needs to sell it now.

It can also mean you won’t get the same level of return on your investment as you hoped. Look at the historical data to determine if this is a repeating pattern or a one-time thing. Before you invest in a property, you should make sure it’s in an area that will hold its resale value.

8. Know the Difference Between a Buyer’s and Seller’s Market
As you evaluate markets, make sure you’re aware if it’s a buyer’s or seller’s market, as that makes a big difference too. If you’re buying in a seller’s market, you’ll likely be up against a large amount of competition - other investors or primary homeowners looking to move to the area.

If it’s a buyer’s market, the prices will be lower because there are more sellers than buyers, and sellers need to make their homes attractive. If you’re buying to invest, buying an undervalued property is a great way to build equity fast, but make sure you check out all other aspects to ensure the property is worth the investment.

Where To Find The Information You Need

It takes a lot of information to evaluate a real estate market and decide if it’s right for you. So, where do you find the information you need? There are plenty of resources available to you, including:

Local Real Estate Agent
Many local real estate agents will offer information free of charge. They do this in the hopes that they’ll earn your business in the future when you are ready to buy or sell. Asking a local agent about the area’s values, rental demand, rent prices, and other factors can be a great way to get first-hand information. Just make sure you double-check the information received to ensure it’s legit.

Online Marketplaces
Online marketplaces, like Roofstock Marketplace, provide a wealth of information. You can find historical values, information about the area’s crime and school rates, property taxes, how long a property has been on the market, and other valuable investment information.

Roofstock provides you with the numbers needed to see if an investment makes sense too. You’ll see information like the net operating income, cash on cash return, and the cap rate.

Online Data
If you’re an avid researcher, you may find the information yourself with a quick online search. Try to use appropriate data from county resources, including the assessor and treasurer, and information directly from real estate companies or appraisers. There can be a lot of misinformation out there if you aren’t careful, but the legit information is out there too.

The Top 5 Real Estate Markets In The Country

Putting all the numbers and research together can seem overwhelming, which is why we’re outlining the top 5 real estate markets in the country for you here so you can see where you may want to start your search for the right investment property.

1. Albuquerque, New Mexico
You may not think of New Mexico when you're thinking of real estate investments, but this year it’s one of the hottest areas to invest. It’s the 32nd most populated city in the country and is a city rich in culture. 

Albuquerque has plenty of employment opportunities in technological and government companies and it’s also home to Netflix, which is currently expanding. New Mexico has some of the lowest property tax rates in the US and it has had steady job growth since the pandemic.

Home prices range from $150,000 - $230,000 with rent prices ranging from $1,100 to $1,300 per month.

2. Baltimore, Maryland
Baltimore homes are more expensive, but this city just outside our nation’s capital has an incredible economy that brings people from all over to live there. Big on military and government positions, you’ll also find plenty of jobs in education, technology, finance, and healthcare.

Baltimore is home to some of the largest and best educational institutions, and it’s a surprisingly cultural area bringing people from all over to live there. Baltimore has quickly rebounded from the pandemic, and its homes are right around the national average.

3. Charlotte, North Carolina
Charlotte, NC, has been a place thousands of people flocked to during the pandemic. With so many more people working remotely, the beauty and charisma of NC brought them to the beautiful city of Charlotte.

Residents can enjoy every bit of nature in Charlotte, from gorgeous beaches to the Smokey Mountains and everything in between. Charlotte is home to some of the country’s largest companies, including Wells Fargo, Bank of America, and Atrium Health.

The average home in Charlotte is worth $250,000, and the average rent is around $1,500.

4. Chicago, Illinois
It’s no surprise that the Windy City gets a mention in our top cities to invest in real estate in the United States. As one of the country’s largest cities, Chicago has many offer residents and real estate investors. The average home is worth $248,000, but the average rent is around $1,750, higher than the national average.

Chicago’s economy is well-diversified, which means there are jobs for just about anyone in any industry today. Chicago hosts 30 Fortune 500 companies too, making it a popular place for people to live and work, making it an excellent place for real estate investors.

5. Cleveland, Ohio
Sticking with the Midwest, Cleveland is another great real estate market this year. Cleveland is popular because of its affordability and a large assortment of jobs in a variety of industries.

Cleveland made our list because it’s one of the top economic regions in the country, which gives real estate investors great opportunities to find reputable tenants. There are few defaults in Cleveland with a strong job market, making it great for investors who want a more ‘sure investment.’

The Bottom Line

If you’re thinking about investing in real estate, Roofstock Marketplace provides all the information you need. If you don’t want to do the research yourself or worry that you might look at the wrong data or misunderstand it, let Roofstock Marketplace help.

You’ll get the most up-to-date information that’s gathered by professionals who do this for a living. They know exactly what numbers to crunch, and they certify all properties they sell, so you know it’s a valid value and worth your while.

While there’s no foolproof way to evaluate markets and know that you’re making a good investment, doing your legwork and using a resource like Roofstock Marketplace puts you on the right foot.

Image by Free-Photos from Pixabay