I just answered this question on Quora, and thought the answer is worth repeating. Thoughts?
The Question: When a person is just getting into real estate investing, how does he monitor the market to make sure he’s making smart decisions?
My 5 part answer and the solution:
Typically there is no current viable way to do this in the USA, since no real estate profession in the US has access to the current local market data that affects risk, opportunity, or prices.
So you have very limited opinions.
- You can network with real estate professionals, and get their opinions.
- Go to websites that have free yearly data like City Data. And you have to presume that the trends from the last few years will continue, which IMHO crazy and risky. For instance, look at the change from 2012 to 2017 and hope that this trend will continue and be the same, in November 2018, nearly 2 years later. I kid around with the guys who promote this strategy, that if the latest data and last 2 years data does not mater, then why don’t you just look at the trends from 2005 to 2010, or 2006 to 2011, or 2010 to 2015, this way it is way easier, since one never has to look at market data. Like I said, I think this is crazy.
Banks do not take into any data that is older that 6 months old in doing risk assessment or loans. So why should you, or why should you trust someone who is using very old data?
- You can build your own proprietary market analysis system. License the monthly/quarterly market data from various data brokers/vendors. Then get some GIS system like ESRI, and then hire a GIS software developer to build your own system. Most these system today are proprietary, and offline and cost upward of $500,000 to build and maintain. This is how large builders, some REITs, large retailers, and companies like Target, know where to open their next store. Imagine if Starbucks had to open 50 stores next week…..how would they do it?
They do NOT, start driving around, look at ads, talk to agents or planners who have no access to current market data, look at chat at Bigger Pockets, or advertising websites, or look at signs. Sort of nuts, imagine a CXO of Starbucks doing this, again, a nuts concept IMHO.
- Some services like Core Logic, First American, and other title companies have some current market data based upon sales and title data. For instance, variables like: Days on Market, Inventory, Foreclosures, and other data. But typically this data in not that easy to do any local data analysis at, or compare on Block Group, Census Tract, or Zip Code or local market to another in real-time. And furthermore, these data sets are more lagging indicators, and NOT leading indicators. So you hare only looking at what has happened, and again, hoping the trend will continue.
Hope is not an investment strategy.
- Since I am keenly aware of this problem and the lack of current market data, I have spent years in data aggregation and building a system to help real estate investors and the industry. We aggregate leading indicators that are not online or pull-able.
Critical data like
Affordability, Disposable Income, GDP, Job Growth, Median Income Growth, New Worth Growth, New Business Growth, Population Growth, Unemployment Rate Growth, Vacancy Rate Growth. And 36-Month Block Group price forecasts…
We plan on launching with webinars next week…..finally.
Hope this helps.
Eddie Godshalk, CEO of Growth Maps
As always, I appreciate your feedback.