by Donna Robinson, TREA Director - www.TheRealEstateArena.com

I often get email from investors asking me how they can tell which
real estate investing strategy is ideal in their city.  From the
perspective of a new investor it can often be difficult to decide
what particular strategy you should use in a given area.

There are two essential ways to break down a real estate market for
residential real estate investing.  One is geographically and the
other is demographically.  

In the case of Geographics let's say we have an investor who lives
in Cobb County, GA and he or she only wants to buy and sell
properties in Cobb County. Since this investor has chosen to limit
themselves to a specific geographic location, they will be limited
to the deals (i.e. Strategies) that they find most readily
available in Cobb County.   

For example, if you are in a suburban area that has lots of new
construction, you may find more retailing opportunities to owner
occupants. You will also find some rentals and virtually nothing
suitable for Wholesaling because everything is too new.  And, the
majority of properties in new areas have very little equity. Short
Sales are a primary way to create equity in newer markets right now,
due to foreclosures. Homeowners who are facing foreclosure are
prime targets for equity creation through short sales.

If you are in an older area such as inside a major city, where
there are thousands of older properties and many fixer uppers, you
are much more likely to find wholesale, rehabs and rental property
deals but relatively little new construction. Some of these same
areas are also filled with bank owned REO's that may represent
excellent opportunities for buyers with cash.

So when it comes to choosing a strategy, your choice will be
dictated by the situation. Is there a lot of equity to work with?
Perhaps wholesaling is the best choice. Is there very little equity
to work with? And it's a pre-foreclosure too? Then a short sale might
be the only way to make the deal work.

On the other hand many investors attend a seminar on a particular
strategy, then try to find a house that fits that strategy.  
For example if you want to be a real estate wholesaler, you have to
go find neighborhoods where the wholesale deals can be found.

This is what most professional wholesalers will do. They don't
limit themselves to a small geographic area. They travel all over
their area in order to find all the potential wholesale deals that
they reasonably can. They may limit their territory somewhat, but
generally they will cover a wide geographic area to find only the
wholesale deals.  

Their focus will be on contacting owners of older properties that
are abandoned, or need lots of repairs. This is because these
properties generally represent the best opportunity for lots of
equity and a flexible seller.

If you are a wholesaler you don't want to waste your time
contacting owners of 2 year-old houses with no equity.

Wholesalers who do this are using the demographic method. They are
not looking in a particular location, they are looking for a
particular type of seller.   

Demographic prospecting means using more of a mass marketing
technique, and targeting preforeclosures, health issues, job
transfers, probate, divorce, and the whole range of life related
events that can lead a person to become a motivated seller.

It is more common among professional investors to search for deals
demographically rather than limit themselves to specific geographic
locations.  However this means you must have a willingness to drive
sufficient distances to check leads. I personally have driven more
than 200 miles in a single day, while viewing as many as 12
properties.  At that point I was specifically looking for wholesale
opportunities so I had to go where those opportunities were. With
gas prices at all time highs, going where the deals are requires
careful research to avoid wasting time and money.

Had I wanted to stay close to home base,  which is a newer area, with
lots of houses built in the past few years, I would only pursue
strategies that work with pretty houses, such as lease options,
subject-to or buy and hold, because my geographic area is newer and
therefore it contains very few wholesaling opportunities.  

It can take you some time to get a feel for the types of deals that
are most likely to be found in your area.  If you are in an older
area mostly built prior to 1970, then chances are very good that
you would find more wholesaling opportunities.  

If you live in a new area where most of the construction is less
than 10 years old you would find more opportunities with less
equity.

Retailing to owner occupants on a Lease with Option to Buy, is my
personal favorite strategy in suburban neighborhoods that are
predominately owner occupied.  You can make that deal work at 80%
LTV, instead of the 65% LTV you need for wholesaling.

So, one key to determining what strategy to use in what area is to
look at the age and condition of the properties in that area and
make offers that work for those properties.

In larger metropolitan areas, the outlying suburbs are much more
likely to be ideal for retailing, or buy and hold strategies.  The
in-town neighborhoods in the older parts of the inner city are
better suited to strategies like wholesaling, because older houses
tend to have more equity and need repairs.

Newer houses usually have less equity and therefore are better
candidates for creative cash flow strategies, like "lease with
option to buy", or "subject-to the existing mortgage".

Creative cash flow strategies may require less equity where
Wholesaling strategies will require more equity in order for the
numbers to work.

In todays market, with foreclosures at an all time high, many
investors are using short sales to create equity where none exists.
REO's are also a great source for discounted buying opportunities,
due to the high amount of inventory banks currently have available
for sale. Where over-supply exists, banks will be forced to cut
deals until demand catches up. That probably won't happen in many
hard-hit markets until 2009. In this market many deals are "made"
not "found", by savvy short sale negotiators.

Any strategy only makes sense if the numbers work. Regardless of
where you are located, and whether your market is "hot" or "cold",
the bottom line is -- what will cost you?  and, Can you sell it or
rent it for more than it will cost? ***

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