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by Matt Scott
Are you blind to the different sectors within your market? New investors often start without a plan or system. They're simply looking to buy real estate from a motivated seller. Besides the motivated seller, you should be concerned about the market demand for that particular type property (sector).
While your "market" is hot, a particular sector of your market could suffer from a diminishing demand! Get to know each sector within your market. The better understanding you have of each sector the better prepared you'll be.
Even experienced investors will often lump their market into two categories - residential and commercial. To truly understand each sector you must break it down further. Classifying the market into two sectors is too broad.
Let me show you how to break down a market into several different sectors. Remember, each market may have sectors that do not exist in other markets.
For example, a coastal city will have resort/tourist properties and even those can be broken down further to
- Condominiums - Fee-simple multifamily - Townhomes - Single-family (free standing) - Mobile homes with land - Mobile Home in campgrounds - Modular Homes - Water front or Water view
Yet, you should not evaluate and determine the status of the tourist market as a whole. I encourage you to individually evaluate each one to determine the current and future demand.
Example: While the condominium market becomes saturated and the demand slows, other sub-sectors of that tourist market could maintain momentum. I've seen the condominium market crest in one tourist area while seasonal, single-family homes and fee-simple properties maintain their strength.
Let's continue with they same coastal city. Now you want to determine the demand of the long-term rental market for locals. Is that alone one sector? It would seem that the rental market is just one sector of the residential sector... right?
The residential rental market could be composed of - Single-Family Homes - Townhomes/Garden Homes - Large Middle-class Multifamily - Large Lower-income Multifamily - Mobile Home Parks - Mobile Homes with Land - Small Apartments - Condominiums
Plenty of mistakes have been made when investors or developers ignore the above. In some of my markets, townhomes are not in demand. I have experienced markets where apartments have saturated the market and even one city has had several apt buildings foreclosed. Well, it's time to buy you say! Right?
Well, I might agree except new apartment buildings are still being built! That's why they only get $250 a month for a 3 Bedroom apartment! With that said, the single-family home rental market is strong, low-income and middle-class.
Trying to judge this rental market by the apartment sector alone would be a mistake.
So the lesson is, don't judge an entire market or sector by only looking at another. Study each sector and evaluate each one.
This article was provided by my good friend Matt Scott of Dealmaker's Cafe. If you would like to learn more about real estate investment strategies and techniques that work then you should grab a cup of coffee and spend some time at http://dealmakerscafe.com.