Transcription
As a real estate investor, when you get a lead or an opportunity on a property, you need to be able to quickly understand the market and what's going on. This is a skill that most new investors undervalue and don't take the time to learn and become proficient at. I refer to this as investing in your market.
In my core markets where I do deals, I know exactly what's going on. I know where the good areas are; I know where the bad areas are. I know the types of properties the market wants and doesn't want. I know what the values are. And knowing that information allows me to quickly make informed decisions about what a deal needs to look like and if it's a market I don't know or I've never seen, I know how to quickly get my head around what's going on. So, on this video, I'm going to show you my five-step process to quickly learn a market using a real-life case study.
Now, in my mentoring program called FastTrack, I spend time every week with my community, and on a call with my student Tommy, we looked at a new construction house that an investor built in Wallace, North Carolina. Now, this investor was motivated and willing to sell it at a discount, but Tommy was unsure how to value the property. He was trying to determine what price would make it a deal. So I took a look, not knowing anything about Wallace, North Carolina, and in less than 10 minutes, I completely understood the market and how I would have handled that situation.
Now, before I break down my five-step process, if you're new here, my name is Jerry Nordon. I make millions of dollars a year wholesaling and flipping houses, and here on my YouTube channel, I show you how to do the same. So if you want to be a flipping Genius Like Me and live your dream life, subscribe to my channel and watch my videos. Okay.
Step one to understanding a market is to isolate and define the market. And when I say market, I'm referring to the relevant area of the subject property you're looking at. Now, take a look at this map area. If the subject property is in this neighborhood, then my market is just this neighborhood. You can see there is a main entrance here and another entrance here, and these are all streets that are part of this development. Now, there may be certain streets that are more desirable than others, but my market is just this neighborhood. That means I'm not going to look at any homes outside of this development. I'm not going across the street or down the road or a half a mile away or a mile away. I'm going to build a fence around this neighborhood and not go anywhere else. Now, the only exception to this rule is if there is absolutely no data at all, and I'm forced to leave the neighborhood and look outside the market, but if I do that, I understand that I'm outside my market and the data isn't as relevant. Okay.
Step two is to create basic filters that match the subject property. Now, I don't want to add too many filters at first because I'm trying to get a big-picture understanding of the market. I can always add more filters later if I need to get more specific. One of the main filters I like to use is a square footage range. So if the subject property is, let's say, 1500 square feet, I might put a range of 1000 ft minimum to 2000 maximum, meaning I don't want to look at comps smaller than 1000 ft or bigger than 2000 ft. In the case study we're going to look at in a minute, it was new construction, so I added a filter, a minimum year built of 2022. That way I was only looking at homes built in the past 2 years. Okay.
Step three is to take a look at the actives for sale to understand the current competition. If there are a lot of them, ask yourself why are there so many homes for sale? Look at the days on market; how long have these actives been for sale? So if there's a lot of homes for sale that have been long days on market, that tells you the market is slow and homes aren't selling. Ask yourself if the subject property I'm looking at were suddenly on the market tomorrow, how would I compare? How would I compete? Do I want to be the 28th home for sale in that market and sit there not selling with everyone else? Heck no! I want to sell quickly. So where would I need to be so that I'm the best home in the neighborhood for the best price? That was the case with our case study in Wallace, North Carolina. There was a bunch of new construction homes for sale and really long days on market. So let's say that there are very few to no actives; what does that mean? Well, that means the market is hungry for inventory. That means if your subject property was up for sale tomorrow, it would sell quickly because there is little to no competition. Okay.
Step four is to look at the actual data, which is sold homes. Switch the filter from actives to solds and go back 6 months. Are there a lot of solds or not very many? What did homes actually sell for, and how long did they take to sell? In our case study, there was not a single new construction comp that sold in the past 6 months, and only one sold comp from 6 to 12 months. That means I have almost no data to support that the market will actually pay for new construction houses because it hasn't been established yet. Okay.
Step five is to use price per foot to understand the market. When looking at actives or solds, pay attention to the price per foot instead of price. Price per foot puts everything apples to apples when it comes to understanding value. Look at the highest price per foot and the lowest and see if you can establish a trend. Usually, you'll see one or two outliers that are really high and one or two outliers that are really low, and then a cluster in the middle. I like to remove the outliers and then take an average on the remaining comps to get a safe, reliable price per foot. In our case study, check this out; there weren't any solds to look at, but take a look at the actives. Notice the very bottom lowest eight comps priced per foot were from 168 to 191, and all of them have really long days on market. That means if I'm going to bring a property on market to compete with all these homes, I would probably want to be at like 150 bucks per foot, so I'm way under these comps that aren't selling.
Now, before we cut to an 8-minute clip where you can watch me follow these five steps to understand the market on this deal in Wallace, North Carolina, I created a comp tool that is really easy to use that I'll give to you for free. You literally put in your address, choose the comps, and it will automatically calculate for you the adjusted price per foot for you. Now, it's really fast and easy to use, and like I said, I'll give it to you for free; just go to compydeal.com to get that tool for free. Okay, let's cut to the call where you can watch me do this five-step process in literally less than 10 minutes. Here is this. It? Y That's it. First things first is I really don't need a ton of backstory yet. Let me just get my head around what's going on here. Okay, so I'm gonna watch what I do here. I'm gonna click on the map feature right here; it's going to show me where this is at. Now, this looks like a sort of somewhat of a rural area; it's not real condensed. I'm going to click right here, nearby homes for sale, and it's going to show me kind of what's going on, and I want to look at just this neighborhood. So this neighborhood, you come in off of here, you got the entrance. I would probably stick into this area here. Looks like these all branch in together, two entrances into this, so all of this looks like the same neighborhood. What I want to do is I want to define my market, so I don't comp something outside of my market. My market is basically follow along this, come down here, branches over here, wraps around this little river system like that. Okay, so that's our market; that's our neighborhood. So I isolated that. Now what I'm going to do is I'm going to say, okay, well, I just want to see houses and our comp. Let's go back to our to the not our comp; our subject property is new construction, right? When was this built? 2024. So I'm going to go to my filters, and I'm gonna say, okay, I want to look at stuff that is just new construction. So let's go back, and I like to go back two years on the minimum year built, so I'm going to go back to 22. I only want to see stuff that's been built since 2022. Now that got rid of a lot of our stuff; that brought us down to just a handful, these ones. So these are all the homes that are active right now because I haven't switched it to sold, so you could see here we there's a there's a bunch of stuff uh for sale right now that is new construction. Now let's go back to your property real quick. How, what's the how many square feet is this thing? That's by the way that's probably uh it's 3900, 3900. Okay, so look here, of all my actives, the biggest one is 2900, so we already have a problem where they built a house bigger than the market. The market average here you can see here is, I mean, you've got a couple in the 28s; everything's under 3000. So if I were to build in that neighborhood, I'd want to build to the market, meaning what's the average home in that neighborhood? Why would I build something too small or too big? I don't know if the market wants that. The market never lies; it always tells you what people want because you look at the data, and the data should be conclusive; it should, you should be able to see enough supporting data to make a conclusion. Now there's stuff down here in the 18s, 2000s, so you know there is an argument here that you could get away with smaller homes, but everything's a four-bedroom; everything is a two and you know three bath are the top built big homes. Let's put this at sold and see if we get the same sort of conclusion. So I'm gonna go back sold, and I'm gonna just go back six months; nothing. So this is a problem for me; nothing. There are no solds that are new construction in the past six months. We have a ton of actives and no solds, meaning properties are sitting and they're not selling. Let's put this back at active, and there they are all again. Now what I want to do is I want to look at days on market. So look at your days on market; this is very not good. So these homes are sitting, sitting, sitting, sitting, sitting, sitting, and not selling. So what does that mean? It means if I were to buy a house, put it up for sale, and I'd have to compete with 20 some other new construction homes on the market, would that be a smart move? No, no. It only would be a smart move if I'm priced aggressively lower than everything else so that I'm the best house for the lowest price, which means I would want to offset my numbers to make sure that if I were to come on market, it would sell quickly because I'm a better deal than everybody else. Let's go look at the average price per foot: 220, 28, 216, 216, 216, 205, all the way down to 190, 190, bunch of 168, but even these things at 168, they're not selling; nothing is selling here on the actives; they, these actives have been for sale forever, like there's not even something here that's under 90 days. Well, this one here, 49 days, but everything is sitting, and then when I'm like, okay, well, is there a market? I mean, are people buying these things? Maybe they used to be. All these investors obviously thought there was, but now watch. Now I'm going to go back and I'm going to say, okay, well, show me what's actually happened; nothing in six months. Let's go back further; let's go back a year. So this is why you're having this conversation; they can't sell. In there, one comp that's built from 2022 has sold in the past year, and it sold for 217 a foot; one comp. This is why, like, you got to get your head around what's going on; you got to understand what's going on, and then you got to make smart choices based on what's going on. If I lock up a lot for sale in this neighborhood, like I go buy a lot or get a lot under contract and I go to flippers, there's a bunch of them in this market, and I say, hey, I got a lot; do you want to build a house and sell it to make money? I'll bring, I got a lot; you should want this, right? What are they gonna say to me? They're gonna say, hell no! I got my last one is on the market 200 days and not selling; why would I want another one? Or they're going to say, yeah, I'll buy another one, but it better be a freaking smoking deal because my numbers are all reset, and I got to be into this thing for lower, and I got to sell it for lower, like that's the conversation you're going to have. So how do we tackle something like this? You got to make sure you get your head around what's going on and then make really good choices. So it doesn't mean I wouldn't do a deal in this neighborhood; what it means though is I'm going to be much more aggressive on my numbers because if I'm going to wholesale in this market, I have to anticipate that my buyers, everybody else is gonna also be in that same mindset. So then I got to bring it to them at such a smoking deal that they can't say no. So here's what I would do. So let, let's just kind of take that train of thought. If I go back to the actives, I'm just going to pick one of these; let's go pick this one here; it's a cheap one. This house is at 169 a foot and 134 days, not selling. Okay, so let's go down here and see what they got this lot for; 60 grand. So they bought this lot for 60 grand. So let's say that I find five more that are around 55, 60, 65, and I get in my head, okay, lots in there sell for 60 grand; that's the going rate; that's what all these other people bought. Well, now I would probably try to bring a deal to them for 40 grand, and I'd say, hey, you know, you paid 60 last year or two years ago; I'd probably want to be at like 15, so I could sell it for 25, 30, because I know that these builders are not going to buy it for 60 anymore because they can't sell their houses, so they got to be, everything, everything's got to get reset for it to make sense. Now I figured that out in literally how long we've been talking; 10 minutes, just by looking at the data. He did share with me a couple of comps though: 196 Cedar Point Drive in Wallace; that's 1.3 miles away. No, heck no! Too far. Yeah, here's our market; I outlined it. Yeah, you're right. Okay, we don't comp outside of this, and why would we? We have tons of data. So let me ask you a question: do I look at this data or do I go look at this neighborhood over here? No, I don't go look at that neighborhood over there. So this is what people do; they they tell you bad information; whatever this guy's telling you for comps are not comps; these are your comps, and not only that, but if it's new construction, you have to compare to new construction. How does that new construction house compare to other new construction houses? And there's only one comp in the past year. I would, I don't even go back a year; I go back six months; there was nothing in six months. So, so even that one comp that's sold that's new construction in this neighborhood, it sold over six months ago, and there's only one, so I don't even have enough data to feel good about any of the sold. I would have to aggressively go low to be safe on my numbers.