Why does market selection matter in Commercial Real Estate?

Let’s start with a quick story:

Everywhere I travel I can’t help notice Real Estate. And just about everywhere I go there are attractive properties for sale. In my travels to upstate New York, there were beautiful classic homes on the market. They were built with character and great craftsmanship. It didn’t take long to find many of these same solid structures at very affordable prices, nor did it take very long to walk away from each and every one of them.

A few weeks later I was back home in the Bay Area, looking for investments. The difference in the quality of the homes from what I saw in New York was striking. Instead of stately homes full of character, I was looking at relatively non-descript houses, duplexes and quads built on slab concrete. And, as soon as I saw some that made sense (more on that later), I pounced.

How could this be? Why buy a house that I really wouldn’t want to live in myself, rather than one with more space, curb appeal and character?

The answer is simple: Market.

The first thing to remember in commercial real estate is that the market always wins. Always.

You could have a investment that looks great outside and inside. It has great landscaping, it’s in a nice neighborhood and you have equipped it with the some shiny new appliances. Still you are having trouble renting it. To make matters worse, the rents you can charge are barely covering your expenses.

On the other hand, you could own an investment property that looks pretty boring on the outside and has simple amenities on the inside. It is never vacant and you could easily raise rents at a reasonable rate every year. This property may not be a place you would want to live in, but it makes you money every month and when you review its annual performance you can’t help but notice how quickly the value is appreciating.

What’s the secret? How could an ugly duckling be so much more profitable than the stately homes in upstate New York?

The answer is simple: Market.

In the next few posts, I am going to explain to you why market selection is so important and how crucial it is to your success.
And, most importantly, I will show you the key features of any good market and how to determine if a given market you are looking it, meets this non-negotiable criteria.