Separating Real Estate Facts from Fiction

“When I started out, I spent a lot of time researching very detail pertinent to the deal. I still do the same today.”  - Gary W. Eldred, PhD

 Savvy entrepreneurs search beyond conventional wisdom, “facts,” opinions and fanciful dodges or assertions. They know that quality facts provide the ingredients for quality decisions. As you move forward in real estate (and life), use multiple data points and sources of information. Interpret, think, analyze, and verify. Avoid a rush to judgment. The world overflows with GIGO (garbage in, garbage out) decision making. But with verified facts on your side, you can outperform the crowd.

Say that someone tells you, “Vacancy rates in this area have jumped up to 9 percent. This isn't a good time to invest in rental properties.”

 How should you interpret this information?

You have to distinguish fact from opinion. Opinions often masquerade as truth. Realize the difference. Even if the 9 percent vacancy figure is in some sense correct, the advice that follows - to avoid investing - may or may not hold merit. So beware! Much of the information you hear is really part fact, part opinion. Clearly distinguish between the two.

Nine Percent Vacancy: Fact or Fancy?

I call a fact a data point that you can reasonably incorporate into your analysis and decisions. For example, you can generally obtain facts about interest rates, apartment rent levels, real estate listings, property sales prices, time on market, population growth and the number of properties up for sale (unsold inventories) in any area.

Before you rely on any number, wisely ask questions such as the following:

• Where are vacancy rates headed? Snapshots of the current situation rarely provide a full, dynamic view. You need trend lines and reasoned forecasts that look to the future.

•  What geographic boundaries specifically delineate the area studied?

•  How did the researchers gather their data? What sampling errors could distort it?

• How does this 9 percent market vacancy rate differ among properties according to building size, unit mix, price ranges, amenities, features, condition, location, and so on? Maybe one large 400-unit property accounts for 40 percent of the vacancies in the area under study. Maybe studio apartments enjoy waiting lists. When you speak of vacancy rates, market segments and niches matter.

Sometimes "facts" are better characterized as fancy. For any number of reasons, the people you talk with (or read) may not know what they are talking about. Obviously, we all inadvertently make mistakes. On other occasions, sales agents (as do lawyers) give answers without facts so as not to appear ignorant. In some instances, people purposely mislead. Does that apartment manager really want to truthfully disclose to you that her building's rent roll turns over twice a year and that vacancies have climbed above 25 percent? I don't think so.

Remember that every market and every property display unique features and conditions. Before you apply any facts or rules of thumb to a property you are considering, be sure to verify their relevance to the property you are considering.