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In Neighborhoods Uncovered, Dimond explains in a simple and concise manner how best to analyze the market for investing in real estate.

Synopsis

Neighborhoods Uncovered is a real estate investment book written to solve a specific niche problem and answer the #1, 2, and 3 fundamental rules of real estate investing: location, location, location. This book gives a local real estate investor the knowledge to finally identify neighborhoods and evaluate deals as an institutional investor.

Continually making sound investments without solely relying on luck to earn a profit requires a proper understanding of the assets at hand and the factors that may impact the fluctuations of the values thereof. It may be difficult for many a layman to quickly figure out all by himself, so some pointers at where to start can thus naturally be quite useful to accelerate in the right direction. In Neighborhoods Uncovered, Joshua Dimond guides the reader through how to grapple with the real estate industry in particular, discussing which resources and factors can be useful to investigate for investing in profitable properties depending on one's risk tolerance.


Location reigns as the supreme factor in real estate, and to uncover the most ideal sites to invest in, Dimond provides a quite useful model making it incredibly easy to follow his line of reasoning in analyzing the market: "Market analysis starts from the broadest perspective and narrows its way down to the most specific site." First look at the indicators at the national level, such as GDP, employment, interest rates, etc., then state, county, city, and finally localize the most appropriate zip code, neighborhood and property. He cites numerous resources of where to find such indicators throughout the book, and has a comprehensive list of them in the appendix at the end. Additionally, Dimond offers a spreadsheet on his website where he illustrates more in depth the indicators he has used for his particular example of a market analysis, and how to analyze them to make sound investments.


Having operated in the real estate market for over 13 years and set rental rates of over 50 000 apartment units, Dimond has accumulated a lot of experience in the industry and seeks to share what he has learnt for newcomers to avoid having to go through the difficult learning process that he seemingly have been through in reading highly inadequate books on the issue. Trial and error isn't the most practical tactic for this business, to say the least, and it's great to have such an experienced fellow articulate the process of market analysis in such a simple and yet useful manner.


If I'm ever to try investing in real estate, I will probably re-read the book multiple times and use much time investigating all the resources and indicators cited, and I'd recommend others to do the same. Is there a more concise and useful guide to investing in real estate? I don't know; there may not currently, and sometime it may come, but I think it is a rather difficult work to beat in this sense, and in my opinion it should be read as one of the great works on the industry regardless.

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I'm a student whose interests vary between economics, history, politics, psychology, philosophy, and others. Economics is my favorite subject, and I have reading and writing as active hobbies outside of my academic work.

Synopsis

Neighborhoods Uncovered is a real estate investment book written to solve a specific niche problem and answer the #1, 2, and 3 fundamental rules of real estate investing: location, location, location. This book gives a local real estate investor the knowledge to finally identify neighborhoods and evaluate deals as an institutional investor.

Overview

If the number 1, 2, and 3 rules in real estate are Location, Location, Location, why are there so few (if any) teaching you how to truly find the best locations for real estate? Despite the numerous books written with the purpose of teaching the local real estate investor how to invest in real estate, very few of them provide a road map as to where the local investor should invest. This book finally solves that issue by teaching the local investor how to uncover the top investment neighborhoods across the nation; creating a consistent, repeatable, customizable process allowing the local investor to not just identify the best market in the country to invest in, but more importantly, the best market for them to invest in.


This book will walk you through how to define what the best location is based on property trended valuations, quantifiable economic indicators, and qualitative demand characteristics. Whether you’re looking to fix and flip a single family home or rent out a 20 unit apartment complex and everything in between; I will walk you through how to identify the “hottest” growth markets, to the historically best performing long-term buy and hold markets.


It’s always frustrating to me when you search through Amazon or other online resources for books on “real estate market analysis” or “how to find the best locations to invest in,” you mainly find overpriced textbooks with limited real-world applicable examples for local investors. The most relevant and relatable non-textbook I found was from 2010. It had some decent reviews but contained mainly paid-for resources not geared for the local investor either.


Simply Googling “hot real estate markets,” or “how to find the best real estate investment markets,” I have only ever found the same headline stories providing nothing useful for any real estate investment. Someone telling a local investor the “Top 5 Cities to invest in nationally” is usually not helpful given most local investors start in their state. It does not help to tell someone in San Francisco that Nampa City, Idaho is the best market to flip houses or coming up with a top-five national list of the most expensive markets and least expensive to flip in. If your market is expensive, you know it is expensive. The important part is: does the deal offset those expenses?


The bottom line, there is a significant knowledge gap in being able to identify the best markets for real estate investment at the local level to either flip properties or hold properties long-term as rentals. This book will teach you exactly how to fill that gap and reduce your risk. Through a mix of institutional grade experience, master’s level education and entrepreneurial grit, I will walk you through the entire process from start to finish.


Additionally, this book will take the market analysis to the next level and help translate information from the market analysis to help you compare deals. Meaning, this book will provide pricing strategies to ensure you maximize profits in the short and long-term and never overpay for properties.


Whether your business plan focuses on fix and flips or long-term rental housing, this book will help you uncover the best neighborhoods to invest within, while supplying a framework to reduce risk and maximize your profitability on any investment.


Background


Some might skim past this section quickly—you want to get straight to the good stuff!—but I also think it is important to know who I am and where I am coming from.


In 2005, the fix and flip boom was going strong, and it seemed everybody I knew was getting in on the action. I did not have much capital to get started, but I did have strong financial and market analysis skills. I started to run proformas (financial underwriting models) and investment analysis for individual smaller investors. They were buying into anything from single family homes, to duplexes and one guy was working on 20–25-unit multifamily buildings. It turns out I had a knack for these investments.


My early success in these endeavors taught me that I wanted to go back to school and really understand what it meant to get into real estate acquisitions and development at the commercial level. So while I kept working, I went back to school part time to get my masters in real estate and construction management at the University of Denver. Here is where I started to put all my skill sets together and started to find my niche within the real estate industry.


I was a natural fit for the financial portion of the studies, but I also clued in on the market and feasibility analysis portions. I thought it fascinating to analyze markets from the national level down to the local competition. You have to be a bit of an economics geek to appreciate the idiosyncrasies and wanting to understand how the story all comes together for every investment. Understanding, there is a story behind every investment; the purpose of a market analysis is to understand the underlying story and use financial analysis skills to tell the story through proformas and other financial modeling. The key to any successful real estate investment, large or small, is being able to understand and communicate the story again and again.


When I graduated with my master’s degree, it was August 2007; not the best timing for real estate. February of 2007 all REITs (Real Estate Investment Trusts) had taken a significant hit in the stock market on concerns of Chinese debt issues. September, warning of the debt levels in the US and massive mortgage banking issues were making headlines. October of 2007 the stock market peaked, and by June of 2008, the bear market declared itself losing 13% since October.


Luckily for me, I just slipped into the commercial real estate industry in February of 2008 as one of four new revenue managers for a major multifamily REIT. At the time, revenue management was a brand new discipline in the multifamily world—having proved itself as a mainstream practice since the 80s and 90s in airlines, car rentals, and eventually hotels. Multifamily was just starting to get into the practice, and I was one of the few on the forefront trying to make it work for our company.


If you’re not familiar with revenue management, it is essentially the practice of optimizing revenue by aligning the right product with the right price at the right time for every customer. Think in terms of hotel stays. When you book a hotel six months out, the price is likely less than if you book the day of your stay. This is because the revenue management system is trying to optimize the revenue—which is a balance of occupancy and rate per room—for that hotel for that one night. When you book six months out, you are just starting to fill the hotel, so they are willing to charge a little less. By the time it is the day of your stay, they may only have 1–2 more rooms and they realize you probably must have that room that night. Therefore, they increase the price because they know your demand elasticity is extremely low and you will likely be willing to pay an exorbitant amount to stay there. Demand elasticity is an economics term referring to how sensitive demand is relative to price.


We have all been “victims” of revenue management at some point. It is virtually impossible to avoid the practice as its benefits have permeated almost every industry. I even helped institute the philosophy with my fundraising charity. As we get closer to our events, we always raise prices!


In the multifamily industry, the practice is slightly different than it is in the hotels, or the airlines, or the car rental industry. You see, all of those industries have the ability to sell their inventory hundreds of times in a year. Hotels literally sell their rooms every night of the year. They could conceivably have a transaction/sale of a single room every day of the year—granted, hotels run at 70–75% occupancy and the average hotel stay is 1.5 nights depending on the location, but it is possible. This is a huge advantage when it comes to revenue management software as it gives extensive data for the revenue management algorithms/software to make very solid decisions to forecast future demand based on historical data.


Multifamily does not have this advantage. When we sell a unit, it is locked up for an average of 12 months; we only get to sell a unit once a year. A 300-unit multifamily building running at a stabilized 95% occupancy might sell 145 units to brand new customers and renew 140 customers throughout an entire year—285 transactions/observations. A 150-room hotel running at 75% occupancy might sell their rooms 27,253 times in a year!


The point is, as we were developing the practice of revenue management for our company, we realized we needed to supplement the lack of “observations” with heavy market analysis.


Throughout my career, I priced over 50,000 multifamily units across the country and have done market analysis from Southern California up the coast all the way to Seattle and across the country up and down the east coast from Boston and Manhattan to Philly, DC, Atlanta, and Miami. On top of my operational background, I’ve also helped underwrite over $1B in redevelopment and acquisitions. Since moving over to the development side of the business where I work today, I have actually worked on the redevelopment and ground-up development of over $150M in costs of multifamily projects.


However, every aspect of my professional career has come down to understanding how to analyze markets and extract the greatest amount of financial value from them.


From my local investment perspective, since getting involved in 2005, I’ve done a number of fix and flips myself and with partners, but I choose to mainly focus on rental properties which I started to get involved with back in 2009 at the bottom of the market in my area. Dealing with tenants is always an interesting game, but keeping the good ones comes down to service and price. With my professional background I have trouble trusting anybody else to manage my properties, and after going through a few 3rd party companies, it is my current rule that I do all my own management of my rental properties.


This combined local and institutional experience makes me uniquely qualified to write this book. Typically, most institutional professionals have no idea how to bring the breadth of market analysis tools they understand and apply it towards single family homes or smaller apartment buildings. The tools they use are just different. However, most local real estate investors do not understand the extent of options out there to analyze markets and be more specific with their market analysis or their presentation and understanding of the financials.


Finally, as someone who has put these practices into use on both ends of the professional and local investor spectrum and been successful, this book takes the benefit of those experiences and creates a concise and repeatable process to succeed in analyzing markets and valuing properties.


This book will make you a better more informed investor.


Outline of the Book


“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” – Theodore Roosevelt


Neighborhoods Uncovered consists of 10 chapters walking you through a step-by-step process of evaluating markets starting at the broadest perspective and funneling down to ultimately individual properties. It is all about equipping you with the knowledge and confidence to make the best decisions based on a sound fundamental, professional and disciplined investment approach.


Chapter 1: Introduction to Market Analysis. Starts with a general overview of what market analysis is and provides a mental framework to guide you through the journey, as well as the fundamental economic thought process behind the practice of analyzing markets.


Chapter 2: Step 1 of the Market Analysis – Getting Started at the Highest Level. Walks you through the beginning stage of the market analysis at the national level; teaching you what economic trends are most important to look for from a real estate investment perspective.


Chapter 3: Step 2 - State Analysis. This chapter takes you into the next level helping you establish property valuation and economic benchmarks within each state so you can create a basis for evaluation of trends at the county, zip code, and ultimately neighborhood level.


Chapter 4: Step 3 - County Evaluation. Here you learn residential demand shifts more to a focus on population or more specifically household growth than employment growth; exploring how to compare counties at a more detailed level and understanding what is most important to focus on, providing specific examples to illustrate the process.


Chapter 5: Step 4 - Defining Sub-Markets: Discusses defining specific geographical boundaries of your ideal markets and narrows in on the process for evaluating current housing supply and demand as well as a process for projecting those trends forward. This is where we also focus more on defining your target customer, so we can “cast the biggest net” ensuring your product appeals to the greatest number of potential consumers.


Chapter 6: Step 5 - Neighborhood Analysis: This chapter in many ways gets you to the epicenter of this book by illustrating how to uncover the best neighborhoods for you to invest within. It discusses the critical shift in your thinking that must take place to understand the demand for housing is no longer focused on easily quantifiable data as in the stages above, but rather is now heavily weighted on more qualitative “desirability characteristics.”


Chapter 7: The Market Based Approach to Analyzing Deals: Here we take the findings from the work you did in the market analysis chapters above and begin to apply it to identifying and evaluating properties. I will cover how to evaluate specific property advantages and disadvantages and how to value each of those within your chosen market.


Chapter 8: Proforma Financial Modeling and Setting up for Performance: This chapter takes you through how to financially underwrite your deals for the expected life of the investment. This goes beyond the snapshot modeling of a single year back of the envelope calculation and teaches you professional investment underwriting skills used at the institutional investment level, helping mitigate risks and setting yourself up for success.


Chapter 9: Pricing for Re-Sale, Pricing for Rentals: This chapter walks you through the final step in the process of actually selling your property. This includes pricing the property from a rental perspective as well providing a framework for evaluating whether you should raise rents or not and by how much based on your specific market conditions; taking into account the risks of vacancy loss so you can make a confident, informed decision.


Chapter 10: Summary: As the title suggests, we bring the book to a close and wrap-up a summary of the teachings through concise bulleted takeaways and provide a resource for you to reach out for additional questions.


In addition to each of these chapters, at the end of the book, I include a number of Supply and Demand economic links providing additional resources for you to dig even further into the market analysis as questions come up specific to your markets or properties.

About the author

Joshua has spent over 13 years in the real estate industry. He’s set rental rates for over 50,000 apartment units across the country. Currently, he's a developer, building apartments and retail properties. His local real estate experience ranges from owning rental units to flipping properties. view profile

Published on July 22, 2019

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40000 words

Genre: Business & economics

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