3 Reliable Sources of Information in an Age of Media Bias
The truth about the markets is still out there if you know where to look.
Sadly, one of the most significant trends of 2020 will likely fall by the wayside for most people. It will not be discussed on the evening news, and it will not be the subject of dinner-table conversations in the average home. However, this trend has the potential to be devastating for real estate investors and real estate professionals who remain unaware of it.
This potentially devastating trend is the plethora of unreliable and biased data that’s overwhelming nearly every industry sector.
For a real estate investor, unreliable data is an anathema. Sadly, one of the worst things that has resulted (in large part) from the COVID-19 pandemic is that everything in our lives today is highly politicized—including our health, our basic demographic data and our approach to business. In a world where the decision to wear or not wear a mask has become a partisan statement and medical data is wielded like a weapon instead of the valuable research tool that is should be, real estate investors are hard-pressed to find market data that hasn’t been twisted and distorted.
Investing wisely relies on your ability to conduct effective and accurate due diligence. Fortunately for our industry, there are a still a few familiar standbys that are extremely hard to distort. Data that does not lie is still accessible if an investor knows where to look.
Let’s take a look at three of my favorite market metrics.
Key Market Metrics
1) Inventory Levels. There are many ways to interpret housing inventory levels, but the actual number of houses available is pretty hard to distort.
Most investors have historically steered clear of observations that markets with limited inventory (i.e., “unhealthy” inventories) are too hot and that markets with large volumes of inventory (i.e., “soft” inventories) are too cold. After all, the key to a hot or cold market relies entirely on your investing strategy and how you source your leads. The market that is hot for a fix-and-flip investor may not necessarily be the same market that is hot for an Airbnb investor, although they certainly can be.
To analyze how a market’s inventory affects you, first find out what the inventory is. Find out what types of properties are in short supply, and then apply that information to your strategy or product.
For example, in the areas of Indiana that are within about a 90-minute radius of Chicago, there is a serious shortage of single-family rental properties. In fact, these communities are experiencing huge demand for these types of properties because many people have realized that remote working is going to be an option and they no longer want to live in the close quarters of a metropolitan area. If you invest in single-family rentals or you fix-and-flip in the middle tier of affordability for housing in this type of area, then the Midwest inventory data indicates this could be a great location for you.
2) Building Permits. In states and regions that are proving to be pandemic-insulated or somewhat pandemic-resistant, building permits are still on the rise. If you are wondering about the underlying health of a market, peek into the building permit records.
In Georgia, for example, building permits are still up. It is no coincidence that this state also classified construction as an “essential service.”
3) Days on Market. Days on market is a classic indicator that most real estate investors already use to evaluate the viability of fix-and-flip deals. After all, when you are estimating the timeline for a project, you need to know how long you should expect to hold that property once the work is complete.
However, every residential real estate investor should be looking at this metric today because it provides an indication of how much demand there is for housing in general in the market. Do not just look at properties that are comparable to yours either. To get an idea of overall market health, look across the spectrum to see what other types of properties and the populations that reside in them are doing.
Be a Leader
Your ability to read the markets, pivot when necessary and make responsible decisions with your own capital and the capital entrusted to you is crucial to your success in 2020 and beyond. Successful real estate investors have always placed a premium on being able to do good due diligence with sound data. In this one way, at least, nothing has changed.
