the-abcs-of-real-estate-investing-ken LifeFeeling
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that, the rest becomes easy. And that goes for Swampland for Sale, which directly impacts
your cash flow and profitability.
I’ve been in business for a long time and even I don’t rely on instincts alone. Before we
invested in the Portland River District, we did our homework. You read about our online
research, our site visit, our marathon of meetings during our two-day tour and our follow-up
phone calls. That was covered in the last chapter. To be honest, we had no choice. Knowing
everything about the Portland market and the submarket of the River District was the only
way for me to make realistic projections about future profitability. It was the only way I
could feel comfortable about making an investment. Knowing the market inside and out was
the key to knowing if the project would be viable.
Fact finding is the opposite of relying on gut feelings. In the last chapter as I discussed
my research method, I touched on a few important concepts that are worth defining further.
These concepts are critical to understanding the total picture of the market and submarket.
Supply and Demand
When it comes to investing in property of any kind, particularly rental property, I make
sure my first objective is to get an accurate read on the supply and demand in the area. I’m
not talking anything complicated, just basic economics. Supply is defined as the number of
rental properties available in a market or submarket.
Ideally, supply should be low and demand should be high.
Demand is defined as the number of people looking to rent. Supply is easy to determine.
In Portland, we asked our emerging team, specifically brokers and property managers. They
had detailed data, including property names, sizes, addresses, and dates of construction.
Seek out this help; why do all this work on your own?
Demand on the other hand is a bit trickier. I estimate demand based on occupancy rates
in the area. If a submarket has high occupancy, demand is great. If occupancy is low,
demand is soft. Another indicator of demand is the prevalence of move-in incentives and
specials. If there are a lot of move-in specials advertised, demand is low. If rental properties
are offering no incentives at all, demand is high. These are some outward signs.
Another factor to consider when determining supply and demand is future supply. By
future supply I mean any and all new rental property that is in various stages of
development, from planning to permitting to construction. Future supply is a critical
indicator of how properties in the area will perform long term.
If through your research you find that supply is greater than demand, you may want to
stay away or at least keep looking for a better market. Your job of finding residents,
generating cash flow, and increasing the profitability of the property will be more difficult.
And remember, the value of a rental property increases based on its operations and cash
flow.
In Portland, demand in the River District submarket we chose for our waterfront project
certainly exceeded the existing supply. We knew that based on our face-to-face meetings
and the fact that nothing was available in the area to rent. But by contrast, in the small
mountain community of Fountain Hills, Arizona, the opposite is true. Here rental properties,