Data is Needed before Investing in a Property
Remember the lovable Johnny 5 from the movie Short Circuit? One of my favorite things he’d say is “Need Input! Need Input!” while reading a 500 page book every 10 seconds.
Investors, we should all take a cue from Johnny 5 while examining the next real estate market you invest in. I’d like to talk today about some of the crucial data (input) needed before investing in a property.
Timing is everything when it comes to real estate investing. You have to be able to determine the speed and direction of the market place, and the relationship between supply and demand. These factors will give you a fairly clear picture of whether it’s the right time to invest.
Your local real estate agent will likely not tell you this, but there are investments that you may want to avoid investing in. When you determine real estate supply and demand trends, you need to look at how many months worth of housing supply there is on the market. This supply of housing is the measure by which you need to test your real estate market. The prospect of overpaying is high if you don’t pay attention If the supply of housing continues to expand faster than the demand for new housing (supply is greater than demand), values will drop.
For instance, a market with a nine-month supply of housing reveals that there is an over-supply of houses on the market in a given area. It does not reveal whether it is a good time to make an investment - it only tells you the market status as of now. However, if we go back to housing supply trends in the past and compare them, we begin to get a better picture of what’s going on. For instance, if we were aware that there was a 10 month supply of housing last month, and an 11 month supply a month before that, and a 12 month supply the month before, this would be an indication that the housing over-supply is being absorbed. What this tells us is that this is a market on the rebound. So, while a housing supply of 9 months may not look that great, the additional information about past months trends provide a different angle from which to see the bigger picture.
To recap, look at the data before you making your real estate investment. Need Input!