The real estate market is constantly evolving and going through a cyclical process. One year it is a buyers market, and the next year it is a sellers market. Some markets have high appreciation rates and others are cash flow machines. Depending on the current market phase, an investor can only be successful in a handful of strategies. However, Adam Whitmire – who has over 15 years of investment experience – discovered a way around this dilemma. As long as an investor is well versed in the strategies that work, no matter what the market conditions are, they can stay active and successful. In our recent conversation, Adam explained what investment strategies work best in which markets, and how to successfully evaluate a market to determine which strategies to apply.
The four investment strategies that Adam has in his repertoire, which allows him to invest in any market, are fix-and-flipping, new construction, and multifamily buy-and-hold. After putting together a matrix of 240 different metrics from throughout the country, he was able to identify which market conditions are best for each of the four strategies.
When to Fix-and-Flip or Build New Homes
The best investment strategies for primary markets are fix-and-flips or new construction. The main metric that determines a primary market is growth, in regards to population, job, and economical growth. Examples of primary markets that Adam currently invests in are Dallas, Houston, Orlando, and Atlanta.
When there is a market that everyone wants to live in, it results in a supply and demand issue. If you have a lot of people wanting to live in a small geographic area – high demand and low supply – prices will appreciate. In order to meet that demand, older homes must be rehabbed and resold, or new supply must be created. Therefore, that is where fix-and-flippers and developers come in to save the day.
Adam has found it challenging to produce a large amount of volume for fix-and-flipping, so if your goal is to complete a few deals, fix-and-flipping in a primary market is your best option. However, if you are like Adam and are looking to take your business to the next level, you will want to focus on new construction.
When to Buy-and-Hold SFRs and Multifamily
The best markets to follow the buy-and-hold strategy are secondary and tertiary markets. The two main metrics that determine a secondary or tertiary market is a strong rental base and job diversification – jobs aren’t coming in from a single industry.
In terms of demand, these markets aren’t stagnating or declining. They just aren’t growing as quickly as the primary markets. As a result, there is a trade off between appreciation and cash flow. If you have a large geographic area and people aren’t coming in, you are not going to have a lot of appreciation. Therefore, rather than seeing the 5-8% appreciation that is common in primary markets, there will be 1-2% appreciation, but you will see solid cash flow and less competition instead.
Where to Find Market Data
Now that we live in The Age of Information, data is all over the place. There are a lot of different companies that will even do all the market research for you. Although, the majority of that data is consolidated from the Census and other government websites, so while Adam will go to these sources for economic and geographic data, that only gets him so far. Therefore, in order to get a deeper look at a specific market, first, he will go to the local MLS and public records. This data allows him to understand, in real time, what properties are currently trading for.
However, even data tables and spreadsheets aren’t enough to paint an authentic picture of a market, so to really get to know what an area is like, you have to actually visit it. Before purchasing a deal, Adam will spend at least a full week browsing the market, talking to local business, brokers, property managers, and looking at newspaper articles and clippings. He wants to know what is going on in the community, where the tax dollars are being spent, and most importantly, what the market feels like.
Only after completing the minimum of a week in a new market will Adam feel comfortable investing and making money in that location. At that point, he has collected all the data and feelings, so all that is left to do is interpret the Intel. If everything looks good, he will start implementing a strategy.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.