Can You Trust The Market Report?

The Real Estate Espresso Podcast

Can You Trust The Market Report?

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Can You Trust The Market Report?

Welcome to another edition of my blog, where I share insights on real estate investing. In this post of Can You Trust The Market Report?, I’m going to delve into the topic of finding and interpreting good data, a crucial part of sound real estate investment decision-making.

Understanding Real Estate Data

Recently, I had the opportunity to host a keynote speaker from CoStar at an event who presented many interesting statistics pertinent to real estate investors. However, the experience led to a realization: just as my net worth did not increase after a hypothetical lunch with Warren Buffett, it’s important to know what exactly you’re reading when you’re presented with data.

Statistics can prove to be misguiding. For instance, their conclusions drawn can differ based on whether you’re looking at them through the lens of equal weighting or value reading. Neither is incorrect mathematically, but both can lead to divergent conclusions.

Analytic Challenges Faced in Small Markets

Often enough, most analytic firms grapple with capturing data in smaller markets. The paucity of comparative data is such that findings cannot be statistically relevant. Furthermore, in a constantly evolving market scenario like the current times with increasing interest rates, restricting the time period for data research can further deplete the already limited data points.

If there are only a handful of comparable transactions available, drawing any reliable inferences becomes a challenge due to the sample size getting reduced.

Reliability of Data Based on Source

Every company, irrespective of their methodology of collecting data, faces difficulties in gaining accurate information on smaller markets. Many data sources concentrate primarily on large institutional quality properties, often overlooking smaller independently owned properties. This in itself skews the data as the disparity between large, highly-amenitized product and smaller properties that may lack such amenities affects comparability.

There are exceptions, such as Rentometer, that specialize in smaller properties and offer insights into the market dynamics. However, to make the most out of these reports from any analytics supplier, one needs to understand their methodology and how they collect their data, and also what the data exactly represents.

If you fail to comprehend their process, you could find yourself citing statistics that are not relevant for your actual project.

Checklist for Analyzing Real Estate Reports
1. Understand the methodology used in data collection
2. Know what the data represents
3. Interpret whether data is relevant for your project
4. Be aware of the limitations of data from small markets
5. Verify if the source concentrates more on large or small properties

I would like to clarify that while discussing all this, my intention is not to criticize any of these companies. When you buy an analytics report, it is that information that you are buying to help you make informed investment decisions.

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