December 12, 2020

JF2293: Applying Data Analysis To Find Undervalued Market Opportunities With Stefan Tsvetkov #SituationSaturday


Stefan has been a financial engineer for 10 years. Now he uses financial engineering knowledge in the real estate market.

His data analytics company, Envvy, helps real estate investors find market inefficiencies and high margin opportunities. Many investors focus on demographics, taking into account population growth and job growth, yet many seem to overlook the local real estate market’s historical pricing. If the market is overvalued the way many were in 2007, the investments can be susceptible to a dramatic price drop.

Stefan Tsvetkov  Real Estate Background: 

  • Financial Engineer for 10 years 
  • 3 years of multifamily investing experience
  • The portfolio consists of a 3-unit & 4-unit property in NJ and a duplex in NY
  • Based in New Jersey
  • Say hi to him at: 

Click here for more info on

Ground Breaker


Best Ever Tweet:

“Markets that are undervalued could perform really well afterward” – Stefan Tsvetkov.


 Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any fluffy stuff. And first off, I hope we’re having a Best Ever weekend. Because today is Saturday, I have a special segment for you called Situation Saturday.

Well, we have a situation, and I think everyone is in this situation in some form or fashion. We are navigating the pandemic as real estate investors and entrepreneurs. And today’s guest is a financial engineer, and he’s going to help us answer the question, “Is the current real estate market overvalued?” So with us today is Stefan Tsvetkov. How are you doing Stefan?

Stefan Tsvetkov: Doing good. Thanks, Joe, for having me.

 Joe Fairless: My pleasure. I’m grateful that you’re on the show. A little bit about Stefan, and then we’ll get right into it. He’s a financial engineer, he’s got three years of multi-family investing experience. He’s got a portfolio in New Jersey, a three-unit and a four-unit, and he’s got a duplex in New York. He’s based in New Jersey. Again, his focus is he’s a financial engineer, he’s based in New Jersey. So first, Stefan, will you give us a brief background about yourself? Tell us about what you’re focused on, and then let’s go right into the real estate market.

Stefan Tsvetkov: Yeah, of course, Joe. As you mentioned,  I’m a financial engineer, and I’ve been doing that for ten years. But in the recent three years, I’ve been investing in multi-family, mostly New York City, basically. So that is my private expense. So I’ve been mainly doing two to four-unit private investments, so not raising capital, not syndications, not things like that; just personal investments on my end.

I have a data analytics company, Envvy Analytics, and that’s some of the work I’m going to talk about here, because basically, we do corporate analytics, we do different markets, market analysis, things like that. So that is some of the focus. Essentially, applying some of my technical, financial, engineering, or data analysis skills to the real estate world.

 Joe Fairless: I love it. I am always looking forward to having conversations with people who look at the real estate market from an objective analytical standpoint and learn what they’ve discovered. So please tell us, what have you discovered?

Stefan Tsvetkov: So the one thing I wanted to draw people’s attention to is investors and syndicators really like to look at different demographics trends; you know, where job growth is, population growth, and things like that. But one thing that I feel is overlooked is where do valuation stands.

So if we have a given market, everybody and investors would pick specific properties around the world, and that’s a great strategy, it’s an excellent strategy considering real estate is an inefficient market. But again, do we know where the real estate market is standing in those areas? Is it overvalued, is it fairly valued, etc? We don’t, usually. At least if I was feeling myself, I’ve never had a sense of this. So that is like part of this study.

So it was inspired by finance, for sure. For example, there is a guy, John Hussman – he is a PhD, he runs the Hedge Fund, and he’s got a metric that would predict, sort of would correlate to subsequent drops in the stock market. And some of you know the main index there over there is the S&P500. So he had a metric that would predict a 91% correlation to subsequent drops in the stock market. Now, one would not have the timing right etc. etc, but again, that is a measure of “Is at this point in time the market overvalued?” And that performed better than price-earnings ratios that would be the usual most common metric over there. So that’s one thing that inspired me.

A second thing that inspired me is before 2007, so in 2005, 2006, there was a guy in Massachusetts, his name is Ingo Winzer. He was on CNN at that time. So he was basically speaking that certain markets, not the whole markets, that certain markets are dangerously overvalued. He was speaking about markets in California, in Florida, etc. So, here was doing that in 2005; he was later again on TV in 2006, and it was pretty much the same story – specific cities substantially overpriced.

So one didn’t have to wait until 2007 to know this, one doesn’t have to wait now, and it’s not really overvalued now to this extent… But these are some things that inspired me. So I wanted to share with your listeners some of my findings;  I thought could be interesting and useful to everyone, pretty much, as an investor.

So in 2007, markets that were overvalued, for example California or somewhere in Florida, they were around 50% — let’s say Arizona was 55% overvalued, Nevada was 49% overvalued. And here, when I say overvalued, the measure that seems to work best – it’s really a simple measure; it is [unintelligible [00:07:54].11], price income ratios, takes an average or whichever metric on that, and then a percentage deviation from that at the current point of time, and that gives us a valuation.

For example, if the historical price income ratio in California has been 8, let’s say, the prices [unintelligible [00:08:12].09] or something like that. Supposedly, that’s not the correct number. And that is currently standing at 10 – okay that would be a 25% overvalued market. So this measure is the simplest way to do it.

 Joe Fairless: And just so I’m tracking correctly – when you say the price, I understand income, but income is household income? And price – is that single-family homes?

Stefan Tsvetkov: Right. So again, that’s not going to be a commercial multi-family, correct?

 Joe Fairless: Got it. Alright. So we’re talking single-family home prices, and household incomes.

Stefan Tsvetkov: Correct. Well, that would be FHFA prices. So Federal Housing Finance Agency. I believe they have some small multi-family in there. But it would be more like single, small multi-family.

 Joe Fairless: Okay, so under five units?

Stefan Tsvetkov: Yes, correct.

 Joe Fairless: Okay.

Stefan Tsvetkov: So that’s a different topic. Now, back to the commercial multi-family – that’s always driven by different factors. I did a study on that; there is still high correlation to commercial, so it’s still fundamentally the same asset. It’s not to say that okay, because [unintelligible [00:09:09].11] is priced differently because the appraiser is different – it doesn’t relate matter. It’s still fundamentally the same asse, it’s still driven by similar dynamics, by sort of the household incomes in different areas, etc. So the correlation to that was over 95%, or something; it’s really close.

 Joe Fairless: Just to make sure I just heard you correctly – did you just say that correlation with commercial is 95% to what you’re finding with the single-family residential?

Stefan Tsvetkov: Okay, so if FHFA, that includes single-family, and I believe includes some small multi-family in it – so FHFA home prices versus what I have, I just am looking at the slide right now, versus CoStar commercial sale index, that had 97% returns basis [unintelligible [00:09:54].26] on returns basis would be less. But yeah. So kind of over the long run, the two should be in line. It’s of course a different asset, it’s priced differently, we know the differences of that in terms of commercial versus residential.

 Joe Fairless: Got it. Okay. So, what you’re talking about now is primarily residential, but there’s likely a high degree of correlation with commercial.

Stefan Tsvetkov: Correct. And thanks for clarifying that. But absolutely, it’s primarily residential. So it would impact more listeners who are purchasing one up to four units, I would say, the most.

 Joe Fairless: Got it.

Stefan Tsvetkov: From there, in 2007 the markets like specifically California, Arizona, Nevada, and Florida, those were the four most overvalued markets. Basically, 49% up to 68% they were overvalued. So that was super much.

 Joe Fairless: This is 2007 that you’re talking about, right?

Stefan Tsvetkov: Absolutely, 2007.

 Joe Fairless: Okay.

Stefan Tsvetkov: The metric that is how deviation from price income ratio, historical price income ratio – so this metric showed 83% correlation with the actual drops that happened post-2007. That is the analysis that I did; that for me was super useful finding for my own investment, because I felt “Okay, that’s really really a good way to know what could happen, at least once a peak in the market gets reached.” So markets like the ones I mentioned that are overvalued, they have substantial drops like 45% to 56%. And then markets which were not undervalued, they didn’t. So that was very interesting.

So I would say if one defines an overvalued market with a greater than 10% deviation from its historical price income ratio, in those terms… So what happened is that the median price drop then was 22%, and then the median variation was 26%, so it was like pretty close. And then if we take fairly valued markets that would be let’s say between 0% and 10%, they had a much smaller drop, of 11%.

And the most interesting thing — and I’m going to relate to where I see things today, but the most interesting thing was markets that were undervalued. And when I say markets, that’s at the state level. So markets that were undervalued, for example, at that time – Texas was actually an example. So Texas was 5% undervalued in 2007. So the drop that happened post the peak was only 4% at the state level. So for all states that were undervalued, which I think were about 12 states at that time, the average drop was 4%, but [unintelligible [00:12:19].18] would have the biggest real estate price drop in US recorded price history, and yet if markets were undervalued within this measure in those terms, they dropped only 4%.

Now 4% was also the median income drop in the US at that time. That’s interesting – so actually, in valuation terms they basically didn’t drop. So there was a drop in income, but not pure in valuation terms. So that was for me a very big finding, because that was indicative of if we have markets that are undervalued now. Let’s say we reach the recession – in June was the official declaration for recession.

 Joe Fairless: Yup.

Stefan Tsvetkov: Markets could go [unintelligible [00:12:56].19] and I am not specifically very sure at all, but again just saying in the event we reach the peak a year from now, two years from now, ten years from now, whenever that is… So markets that are undervalued at the state level at the time, I don’t think they are going to drop much.

 Joe Fairless: And then when there is a recovery, they don’t have as far to make up, because they were undervalued during the worst of times.

Stefan Tsvetkov: That is correct. And Texas would be a great example. So it was actually undervalued, and then it was in fact among the very top performers afterwards.

 Joe Fairless: Yeah. I bought a single-family house in Dallas, Duncanville specifically, in 2009 for $76,000, and I sold it in October of 2019 for $175,000, or something like that.

Stefan Tsvetkov: Well, we know the fundamentals for Texas – it’s a great market, it’s population growth, etcetera. It’s absolutely outstanding. But I would say markets that were undervalued – they could perform really well afterwards as well. There could be a reason that they were undervalued because of genuine weakness, so that can be as well, and they can have subsequently — they’re undervalued but they always stay undervalued, they sort of have weak performance. So that’s also possible.

 Joe Fairless: So the big question is, what’s undervalued right now based on this metric. Right?

Stefan Tsvetkov: Yeah, absolutely. Most of the US states are actually undervalued. The only overvalued states right now are the following – Idaho. Idaho is the only super sharply overvalued; I had like 22% overvalued. And there are certain cities that are more overvalued than others. Boise, Idaho is, I believe, like 33% overvalued.

 Joe Fairless: Oh, man. That stinks. I just did a passive investment in Boise.

Stefan Tsvetkov: Oh, really?

 Joe Fairless: I’m not actively buying there. My company isn’t, but I passively invested in — I think it was Boise, or somewhere in Idaho, for sure.

Stefan Tsvetkov: Okay. But look, another thing to look at… Actually,  this only matters once the peak gets reached. So if it takes five or ten years, your investment in Idaho is going to be among the best performing investments, chances are. Because through the peak, real estate has super big momentum.

Another thing that I’ve seen like in real estate markets – there is autocorrelation. So if returns were high last year, they may be high this year. In fact, I think like most states, they have like 70% autocorrelation, and things like that. So you can get the next year return to be high if it was high last year. Stuff like that. So again, if you invested in Idaho, that not really necessarily a mistake just because it’s overvalued. It’s going to be the strongest performer, it’s going to continue being the strongest performer until it reaches a peak in the cycle, and at that point, the subsequent drop would be probably in line with the valuation.

 Joe Fairless: Alright. Idaho… Where else?

Stefan Tsvetkov: So you could exit at the right time, you know?

 Joe Fairless: Well, I’ll just hope that they do. I’ll share this with them and mention this to them. But as a passive investor, I have no control over when the exit happens.

Stefan Tsvetkov: Absolutely. Okay, I understand. This is what I see now. There a few other places now — I would not be too worried, but the strong performing markets are just mildly overvalued. So if we take like Nevada, Colorado, Arizona, I see a 12% to 17% overvalued. And then the states of Washington, Texas and Florida are like 10% to 11% overvalued. Now, Texas or Florida – okay, those are like the big markets, the best markets, I would say. You know, they’re like truly outstanding. With that said, again, if they are 10% or 11% overvalued, is it not the time to invest there? No. They are the best markets, they will grow the most for these years. It’s just sort of a number to keep at the back of one’s mind, that in the end, if this number gets higher – from 11% it may reach 30% at some point, or something like that. We never know. So at the peak of cycle, that would be something to look for, to watch for, because drops tend to correlate the most to that. Now, those are the overvalued states, actually.

 Joe Fairless: So how’s Idaho compared to Texas? What are the numbers? 23% to what percent?

Stefan Tsvetkov: Yeah, Idaho 22%, Texas 11%.

 Joe Fairless: Okay.

Stefan Tsvetkov: And 11% is a normal thing, a normal market; it’s not a big deal. It’s a strong performing market, there is a lot of competition; people who are buying very much there, obviously.

 Joe Fairless: In 2007 what was the most overvalued — we’re saying market, but really it’s state. So what was the most overvalued state in 2007?

Stefan Tsvetkov: Yes. So that was very different. So that was California, 68%.

 Joe Fairless: Wow. What was around 22% in 2007?

Stefan Tsvetkov: Around 22% were many states at that time. For example, New York state was 24%.

 Joe Fairless: What was around 11% in 2007?

Stefan Tsvetkov: Okay, 11%, I see Vermont.

 Joe Fairless: I don’t want investments in Texas to be associated to investments in Vermont. That doesn’t give me the warm and fuzzies. [laughs]

Stefan Tsvetkov: Again, honestly, personally, I think I’m a supporter of big states, big investments, those are the strongest markets. I’m not going to debate that by mere valuations. It’s just at the peak of cycle, that’s the only time that it’s going to matter. Those are the markets that are going to perform the strongest, and that’s it.

 Joe Fairless: And when you say the peak of the cycle, how do you define the peak of a cycle? Because right now, a lot of real estate investors would be saying we’re going through some tough times currently.

Stefan Tsvetkov: Well, that is a good question. I’ll use again 2007 as an example. So that would be the peak of cycle would be a very different date in every single region, in every single state or county would be a different date. So in some places it happened in the second quarter of 2007, in some places it happened in 2005 in fact.

 Joe Fairless: But how is it defined?

Stefan Tsvetkov: It’s just purely prices reaching a peak and having a substantial drop afterwards, or certain drop afterwards that maybe takes two to five years to reach to the bottom.

 Joe Fairless: Got it. So we really don’t know what the peak is until after it’s happened for some time, and then we have to go back and say, “Oh, well that was the peak a year ago, or two years ago.” Right?

Stefan Tsvetkov: Absolutely. Yeah. We would not know. So there’s no timing, prediction at all. For example, if I say Idaho is overvalued, there are no timing predictions to — does it need to drop if it’s overvalued? No. It can stay like that for a while. And in fact, there are different scenarios that overvaluation can even resolve. So one is price correction, but that’s not the only one. We could have a reduced price growth; that would be the second scenario, for example. Of course, it’s  overvalued, so because of that, in the future is going to experience comparatively less growth, just so that incomes catch up.

And let’s  say the third one – prices may even continue to be super super-strong, but income experienced a sort of super growth, so they are even stronger. And then in the end incomes and prices catch up. And even though let’s say Idaho is overvalued, then it gets resolved and it’s normal.

So there are different scenarios, it’s not really that. It’s just what I’ve seen and to my strong senses, if we reach a peak at some point, that’s the thing that I’m going to personally look at in terms of where prices are going to go. And it’s the most predictive metric at points of change in the market cycle, I feel.

Now the metric – this is just price/income ratios, it sounds simple; it can actually improved. I’ve been working on some improvements that reflect housing shortage. That seems particularly useful at the county level or specific cities. Because cities – it’s very interesting, the way that people speak about places like San Francisco for example. San Francisco is really expensive. I can dig deep, and it’s as if [unintelligible [00:20:54].24] drop there because it’s really expensive. But that’s not how it works.

 Joe Fairless: Supply and demand.

Stefan Tsvetkov: Right, it’s supply and demand. And the fact that San Francisco is highly unaffordable does not make it overvalued. So there are places that have experienced certain housing shortage, that have become shifted upwards in their affordability, so to say. That’s what happens in big cities. So they have been previously much more affordable, prices to income have been let’s say five times, and at some point, they’re maybe fifteen times. Now that happened gradually, that happened with insufficient housing, due to population growth, etcetera. But at that point of time, once it’s already at fifteen, the affordability, well that’s a place that’s not affordable. But now it’s going to be gauged on it being overvalued or not, based on how affordability changes. It’s not going to be just because it’s absolutely not affordable that’s going to drive if it’s overvalued. It’s going to be if it’s unaffordable relative to certain historical levels on some, let’s say, like a moving window of time, let’s say something like that. So that’s it.

So that can be improved. I’ve worked [unintelligible [00:22:07].26] it reflects that, I feel that’s even more useful, because then you have pretty much most of the drivers of real estate included in that – you have incomes, you have population, you have housing supply… So it becomes pretty comprehensive. I feel one needs to have a shorter time window to get, I believe a very high 88% correlation when they use like a five-year window, when including housing shortage as well. But I feel it’s not so safe. The simple measure that is here is very powerful. It worked really well then, and I feel it would work at a future point as well.

 Joe Fairless: I’m grateful that you came on the show and talked about this and your findings. We need to wrap up really quick. What’s one thing a listener should do with this information, who is an investor and looking to identify where they’re going to invest next?

Stefan Tsvetkov: One thing they should do — if they are risk-averse, so if they want to be protected from a price drop within the markets they are investing in, they can reach to me or they can do these similar calculations themselves and basically determine markets that are currently undervalued, if they want to be protected from a price drop in the event we reach peak.

So if they do invest in markets that are undervalued, it’s going to be a very slow likelihood that a price drop happens there, let’s say at the state level. Now, within specific small geographies, it is possible that a drop happens, because it’s very difficult to predict how people are moving from one city to another, etc. But I would say people who are risk-averse should invest in well-performing markets, so markets that have good price performance, which is nevertheless currently undervalued, to be protected from a price drop.

 Joe Fairless: We talked about the overvalued states and you said most of your states are undervalued, but I don’t think I asked you what state is the most undervalued? What are the top three?

Stefan Tsvetkov: The top three currently are Illinois, Connecticut, and Arkansas.

 Joe Fairless: Huh. I don’t know about Illinois and Connecticut and people investing there…

Stefan Tsvetkov: I would not suggest one should invest there just because they are undervalued. Those are the markets that always have weaknesses, and that’s obvious, and I know Connecticut clearly has all the demographic weaknesses at its disposal. So I would not suggest that. I would say markets that are undervalued, but they performed well. So if we take for example Indiana, they are 6% undervalued, but they are 27% above the previous peak in 2007, so they have done well in the market cycle. So that would be my focus in that sense, for small investors.

Again for people who are doing big project syndications etc. I do believe the big markets are the best. One would have to kind, of course, be somewhat cautious at some point, if it does become more overvalued. I would say for now it’s still at good levels in terms of overvaluation.

 Joe Fairless: That’s helpful. Thank you, Stefan. How can the Best Ever listeners learn more about you?

Stefan Tsvetkov: Thank you. Well, they can reach to me on LinkedIn, Stefan Tsvetkov on LinkedIn, or they can send me an email at So that’s the best way to reach me. I have a YouTube Channel, I run also a Meetup series, it’s called Finance Meets Real Estate, in New York City. So those are some ways to get to me.

 Joe Fairless: Stefan, thanks for being on the show. I hope you have a Best Ever weekend. Talk to you again soon.

Stefan Tsvetkov: You too.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute 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. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast 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. For more information, go to

    Get More CRE Investing Tips Right to Your Inbox

    Get exclusive commercial real estate investing tips from industry experts, tailored for you CRE news, the latest videos, and more - right to your inbox weekly.