The Science of Flipping - How To Analyze The Real Estate Market

Episode Date: July 20, 2021

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Hey guys, welcome back to the Science of Flipping podcast. I am your host, Justin Colby. And on this episode, we're gonna be talking about how to analyze a market before you start investing in it. Great subject matter, so check it out. All right, so the first thing that I want to bring up when how to analyze a market of whether it would be a good market to invest in is this. First of all, what is your investing strategy? Now, for those that are wholesalers, and I'm a predominant wholesaler versus those that are buying and holding, which I also do, I do roughly 20 wholesale deals a month where I buy anywhere from two to four

homes to keep in portfolio a month. Now, for me, I need to make sure that both business models will work in any market I'm looking to invest in. Now, if you are someone who's only going to be doing wholesaling, then you really need to focus on your population. Now, if you are someone who's only going to be doing wholesaling, then you really need to focus on your population. You want to make sure that there's enough volume of households to actually be able to do a volume of wholesaling. If you're only going to be flipping, you would likely want to make sure very similar things in terms of population. Flippers might also want to look at things such as new builds. Is there growth opportunity? Are developers there growing homes? Because as a flipper,

you tend to buy properties that are built in the 1930s or 40s or 50s or even older, and you're making the home like new. So for flippers, you actually might want to make sure that there's going to be more development opportunity. Are there more strip malls going up? Is the population growing? And are developers, residential developers, they're actually building out more new homes? That would make a lot of sense. And for us buy and hold individuals, the landlords of us, I am actually really more focused on making sure there's industry in the markets. Now for me specifically, I actually do all three. So when I'm analyzing properties or what, what,

or when I'm analyzing markets and what market I should be going to, for me, I want to make sure all three have the characteristics I'm looking at is I will wholesale in all the markets. I will flip in all the markets and I will buy and hold in all of the markets that I am actually active in. Now, for the next part of this is let's kind of break down some of these criteria because many of you new investors likely are just going to be getting into wholesaling. And so I want to give you my personal criteria of essentially what I do to kind of pick a market so I can go spend money, time, energy, activity in a market that's worth my while. First, I know this is going to sound a little crazy, but it is not whether there is unemployment, high unemployment or good employment. The first thing I'm looking at, is there a major sports team in the city? And for some cities,

the answer is going to be no. But the next layer is that, is there a major university? You see, my philosophy is if there's a major sports team, there tends to be some economic flow, money flows where sports teams go. And for a lot of other places, such as let's just use Nebraska, for example, where the Nebraska Huskers is such a big draw that you could consider them a pro sports team. And so I look at markets to make sure that there's some level of sports team and or some level of major, major university, like a University of Nebraska. So for example, one of the major markets that I'm actually in, aside from Phoenix, is actually Kansas City. And it really fulfills that. Not only is there great colleges there, but they also have the Oklahoma City Thunder, right? And so

they absolutely have the ability for both the colleges and sports team. Now, the next major criteria I would advise you guys on is going to be the price point of the markets. When doing research, as I've mentioned, you want to make sure there could be growth. And yes, you want to make sure that there is unemployment, high unemployment or low unemployment. But I actually want to make sure that you are looking at the price point. For us wholesalers, we really want to be in a price point that can create two exit strategies for our buyers. We want to make sure our buyers can either flip the property, rehab

and flip it, or we want to make sure that they could either or also buy and hold it, keep it as a landlord. And so for me, I want to make sure I am well below the $300,000 price point. Now, why do I choose that number? And here's the reason is nationally, the median price point is roughly about $325,000 as a moment in time. And I want to be roughly, and I want to have roughly a 30 or 40% discount on that number. And so if I do that math, I really, really, really want to be under roughly 200,000. But I'm willing to be under 300,000 depending upon the actual city. So in a state like Arizona, or specifically Phoenix, I'm okay being under 300,000. When I move into Oklahoma City, and the price points are much lower, I'm really

only focusing under $200,000. Either way, I want to make sure I'm at least 30% or 40% under the median price point. That is my second criteria that I'm really going to look at. I know the first one's a little funny when it comes to big sports teams or big colleges, but the second one makes a lot more financial sense because you really have two great exit strategies, whether it's going to be a flip property or a buy and hold property, whether you yourself are going to buy it or if you're wholesaling, you have those type of buyers. Now, here's the third thing that I actually look at. One of the third pillars is I want to make sure that there's potentially some sort of military base nearby.

For the same reason I point out the actual sports teams is because they will have a constant need for housing and it will have a constant need for continuous housing, meaning people come and go out of these military bases. And so they don't tend to grow massively larger each and every year, but they have a consistent need for housing. And so I really want to see if there's any level of military base in the area, in the cities that I'm looking at. And so, for example, Phoenix, there is a military base. In Oklahoma, there are several military bases. And so those are the two I'm going

to highlight for this training. But that's another category that I want to be looking at to make sure that there is some level of military base. The next is going to be industry. What major industries are there and what major industries could be going there? You'll see that a lot of industries are leaving specifically California, going into middle America, whether it be Las Vegas, which is not middle America, but going east from California, whether it be Las Vegas, whether it be Texas, whether it be Arizona or other states such as Alabama, North Carolina, that you can see car industries going, tech industries going, and what industries could be moving into the market that you're looking at. And so I want to know what the current industry is within that area, but also what could be moving in, if anything.

So I take a look at what type of industries, preferably I have two or three or at least multiple major industries in the market that I'm targeting. And lastly, guys, I really want to look at the population. The population is something that I would say, I don't want to go into a major market for less than 100,000. Ideally, that market just won't have enough volume. There's not enough people living there to do the volume of transactions. Now, if you are someone only looking to buy rentals, would a hundred thousand fit? Absolutely. That is plenty of residences for you to actually buy plenty of rentals. But ultimately, I really want much larger cities. It doesn't have to be like Phoenix that has 7 million people. I think that's the number. But I want something

that has a higher volume of population. And lastly, lastly, lastly, and I know there's a lot of gurus out there that are going to tell me this should be number one. But I want to check out the unemployment or employment rate is very easy to check out. Obviously, I don't want it to be high unemployment. But I really look at all the other characteristics as priority over unemployment. Don't ask me why. More of a kind of a gut feeling there. But listen, take a look at unemployment and the rate of unemployment.

It does play an effect. But for me, quite honestly, I want to make sure there's major sports teams, multiple major industries there, or at least one really major industry. But even that I don't love because if that major industry decides to move, you're stuck, right? So I want to have multiple major industries. I want to make sure there's colleges, sports teams, military bases. I want to make sure the population is well above 100,000. And I want to make sure this could be number one. I want to make sure that the price point, the median price point of that city is at least 30 or 40% off of the national median price point. And if all those come together, you have a great market and I would

encourage you to start investing in that market. And guys, I'm together, you have a great market and I would encourage you to start investing in that market. And guys, I'm going to take a second here and plug myself quite honestly, is if you are listening to these podcasts, but you are not watching my videos I put up on YouTube, you're doing yourself a disservice. I really encourage you guys to get over to YouTube, youtube.com forward slash Justin Colby. I drop three videos a week. So if this is the only platform you are listening to me on, make sure you go subscribe to my YouTube channel, youtube.com forward slash Justin Colby, three videos a week. All right, guys, hopefully you really enjoyed that podcast. I get this question all the time. How am I choosing the cities I'm

going in? So this is the answer. Do some due diligence. And by the way, for those of you who are saying, well, where do you find this information? It's called Google University. Check it out. I'll see you guys on the next podcast.