Real Estate Investing Series: How to invest in residential real estate using the ecosystem available

 

This post is about how to invest in Residential Real Estate and how to use the information available online. It is also an extension of thoughts to show real estate is considered safer investment option and there are ways and means to protect you from any difficult real estate decision.

 

Established Eco-System

 

realtor.comIn the US, The National Association of REALTORS® was founded as the National Association of Real Estate Exchanges on May 12, 1908, in Chicago. It had 120 founding members, 19 Boards, and one state association.

 

 

realtor.ca

In Canada, the first real estate board was founded in Vancouver in 1888. However, most real estate boards are created 1955 or later. CAREB was created in 1551, which eventually evolved into CREA.

 

These realtor’s associations, their recognition by governments and resulting regulations created eco-system which is helping millions of home buyers and sellers to make reliable real estate decisions every day.

 

One of the most important features of real estate boards is their Multiple Listing Service (MLS) system.

Have you ever thought without MLS System, would you be able to buy or sell your house at the fair market value or in a reasonable time?

Let me ask you another question. Do you think it would be possible to establish the fair market value of a house without MLS system?

The answer to both above questions is NO.

The smart real estate investors are using the information from MLS system to their advantage every day.

Some of the examples of information available from MLS systems on monthly basis are as follows.

  • Median Listing Price
  • Average Sold Price
  • Median days on market
  • Average numbers of houses sold

These are hardcore data. These data are made of day to day real estate transactions. And so they are very reliable information from investor’s point of view.

As a real estate investor, whether you are buying or selling real estate, prior to making the decision you can check the trends from MLS Data system to make the right decision.

How do investors use this eco-System to make real estate decision?

The summary Jan 2018 report of Toronto Real Estate Board

tren report
Toronto Real Estate Board Report Jan 2018

 

How do you read this report?

Let’s check the summary information on the bottom right.

  • The number of sales decreased by 22% year over year
  • New listing increased by 17% year over year
  • Active listing increased by whopping 136% from last year
  • Average price decreased by modest 4% year by year
  • Properties remaining in the market longer than before, before getting sold

Here are the apparent and not so apparent conclusions from the above information. A seasoned real estate investor would draw look for the best opportunity.

  1. Above information indicates the real estate market has softened in last one year.
  2. From seller’s perspective, prices are down, but not drastically reduced.
  3. As an investor, who wants to sell, the sale may still happen in reasonably quick time (32 days) depending on the condition and presentation of the property to be sold.
  4. The total number of properties available for sale are more than 11000 and this is an increase of more than double from last year. As an investor buyer, one should look for the neighbourhoods where prices have moderated more than elsewhere.

 

Similar information available for almost all the major cities of North America.

Median sold price comparison for Cleveland, OH and Buffalo, NY

So one can rely on the information readily available on the internet to make the decision. Or hire the Realtor to dig deep and understand and interpret to use it to own advantage.

 

I genuinely believe using this information to your own advantage and making the right decision is easy!

Related Article: Buying Land for Investment Purpose: Some Strategies for Small Landlord

Be knowledgeable, and find your way to success in Real Estate Investing

Do not think I am trying to make it sound easier for you.

Let me explain.

Once you seriously start considering real estate investment, all these info are readily available. They are easy to interpret. At the initial stage, one can hire local realtors to help to interpret the information. Like in any big project, once you start applying your mind to the subject, your nerves and instincts start adjusting to the circumstances. It’d be just matter of time, you’ll be very comfortable in following your instinct and common sense to make the right decision. This is how you learn, how to invest in the residential real estate.

Lets me give you an example. All my examples are based on my real life experiences, either first hand or experience of the person whom I personally know.

Example

James, a seasoned real estate investor, got the whiff, a prestigious builder is bringing up a townhome project in a nice area at the outskirt of the city in about 6-8 months from now. He knows and has seen in the past, properties purchased from this builder have always appreciated well. He also has the vision to go and live in that area if circumstance permits in future. But that option is in the back of the mind.

He is keen to book a unit and has 6 months to bring up the down payment required. At the moment, he is all invested and does not have any cash sitting idly.

Take an informed decision

He owns a downtown condo, which has appreciated reasonably well. It has accumulated a good amount of equity in it in 5 years since he purchased it. He does not see any further appreciation because of the age of the building.

After contemplating the idea for a couple of days, he calls his realtor to schedule a meeting to get more info.

His realtor gives him data info of last few months transaction of the area and of his building.

  • Average and median price of similar condos, just recently sold
  • Number of sales in last one month and each previous month, in his neighbourhood
  • Active listing available for sale at the present day in the neighbourhood
  • Average days on market
  • The average ratio of sale to the listing price of the last month and each previous month

Example of the type of info available from Real Estate Board monthly report

 

Before listing, James expects to sell the condo around $470K. He also thinks it’s going to be sold between 30 and 60 days.

After careful consideration, James listed his condo, sold it for $467K in 27 days. He used the proceed to pay 20% down payment required to book the townhome in his preferred area.

This is a typical example of how distinguished investor goes about making right real estate decision by using the information available in most North American Major cities.

In the next post, we’ll see how landlords use information available ion the public domain to make the decision to advance his or her investing career.

Information for aspiring Canadian landlords about the rental market

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