Trendspotting: The Key to Success in Real Estate Investing

Profiting from Real Estate investing seems easy – until you actually attempt to do it. With housing market fluctuations affecting both buyers and renters and renowned economists predicting another recession, it’s best to arm yourself with as much information as possible before attempting to grow your money with real estate.

Sure, you probably already know some basics: you’ll need to line up your capital and research loans, if necessary. Knowing your budget will enable you to focus your search on relevant areas where you can even buy property to begin with. Then, naturally, you’ll need to do research to sift through the possible areas for investment. Whether you’re interested in local, national (domestic) or international real estate investing, there are opportunities everywhere. However, just because they’re technically opportunities doesn’t mean they’ll grant you the success you’re after.

To better gauge how lucrative an investment is, you will need to take a look at up to date data about the areas you’re zeroing in on, including recent purchase prices and average time on the market. Beyond that, you can gain insight about the demographics in the area you’re interested in, including age brackets, familial makeup and even education level. Examining all of these metrics should give you a great idea about whether or not there’s profit to be made by investing in real estate in a given area – right?

Wrong. According to Managing Partner and Chief Investment Partner of Sorin Capital Jim Higgins, there’s a lot more to it. The key to successfully investing in real estate boils down to how well you can read the trend map. “It’s important to look at statistics beyond a snapshot for a given time. Assess multiyear trends: are prices going down? Are houses sitting on the market longer now compared to 2, 3, 5 and 10 years ago? All of these are signs that point to possible loss on investment.”

Become a Trendspotter

Trends can disclose more than any laundry list of statistics that only applies to the moment it was extracted, whereas trends can show you the direction in which the area is headed. Are prices going up steadily, going down, or stagnant? Is the population slowly transitioning from mostly retirees to young couples? Are property types the same now as they were a decade ago, or is new construction taking over the area? Do homes here tend to rise in value every couple of years, only to plummet again shortly after? All of these questions and more will enable you to make a better decision if you were to only examine average home value per square footage and briefly browse a neighborhood profile.

Sorin Capital’s Jim Higgins also recommends taking a close look at any outliers to the trend: “take a look at any specific streets or neighborhoods that don’t follow the trend of their surroundings. These may pose a better or worse investing opportunity and are more likely to go under the radar because they blend in with the rest.”

It’s easy to get carried away with research into trends, so we highly recommend you limit your research to no more than 15 years. In most cases, looking at data from the recent 10 years should suffice, but in particularly slow growth areas, 15 years will give you a fuller story of how the housing market tends to behave.