Buy better! That’s how you make it in today’s real estate market. Boy that was easy. If you believe that then you can stop reading. If only it was that easy. Buy better is how you should always buy in any real estate market good or bad. Investors always have to chang their buying strategies based on what the market is doing. The question is how do we do that? The answer is know your market. You have to live and breathe your market so you can always be ready to make a buying decision. How do you do that? There are several methods we use together to become knowledgeable of our current market conditions.
Read the paper. The local newspaper has a wealth of information about what is going on in your market. Our local newspaper publishes every Saturday last week’s sales. It will list the number of houses sold in a particular community; the median price of the houses sold and the number of days it was on the market. You could start to track that information and watch the trends.
Get information from your power team member, your realtor. A realtor has a wealth of information available from the MLS. My realtor sends me a monthly report that shows the number of houses sold last month, the number of houses for sale or listed and the number of houses pending sale. This report also shows the history of these figures for the past 15 months on a chart. Showing how the market is trending. My realtor also gets me a report for a particular area of the information I listed above and the median price for the houses sold and listed
Hot mapping the information you gathered above. Hot mapping is plotting information on a map of your community with colored pins so you can see the areas that you may want to invest. You always want to invest around the median price of homes; why because that is where the most activity is and more likely to attract a buyer. I breakdown the pricing for an area on my Hot Map as follows:
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40 – 70% of Median (Blue)
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71 – 90% of Median (Light Green)
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91 – 110 % of Median (Dark Green)
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111 – 150% of Median (Light Orange)
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151 – 200% of Median (Orange)
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201% + of Median (Red)
I will assign a color for each of the price breakdowns and start mapping the prices. There are two ways to map the number: 1) Tack the map on the wall and use push pins; 2) Use computer program. I use Microsoft Street and Trips program. It allows me to enter information about the address and a colored pushpin on an electronic map that I can save and use again. You can load all the information on a spreadsheet and import it to the program for quicker input.
All this information, no matter where you get it from, will tell you how the market is doing at the moment. Time gives us the trend in the market. You need to base your buying decision on that trend. If your market is trending down you need to adjust your price down. Depending on your strategy (buy and flip or buy & hold, etc..) will ultimately determine your buying price. Start gathering information and plot away.
Michael Smith has been a licensed architect in California and a real estate entrepreneur for over twenty years. He lives in Salida with his lovely wife, Mona and their four children. He spits his time between Michael D Smith, Architect and JM2 Investment Properties. Jeff, his brother, and he are developing TwoAverageJoes.com to educate other real estate entrepreneurs.
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