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Absorption Rate and Months of Inventory in Real Estate

December 6, 2022 by Marco Santarelli

Absorption rates and months of inventory in real estate. What are they, and why are they significant? This information is useful since it represents the liquidity of a market. As a real estate investor, you can help maximize your profits by knowing the liquidity of a given real estate market. By knowing the liquidity of a market, you will better understand that market and therefore be able to take advantage of the various buying strategies afforded by it.

One of the measurements frequently used to gauge the liquidity of a given market is the absorption rate. This is basically the rate at which a specific segment of a real estate market sells in a given time frame. These segments are usually categorized by price range but may also be categorized by property type. The absorption rate can assist sellers to determine the optimal price for a property. The absorption rate is useful information for buyers as well because it indicates the extent to which a seller may be willing to lower their asking price or make other concessions.

Absorption Rate Formula

The easiest way to understand absorption is to put it in more tangible terms and measure it in “Months of Inventory”. In other words, we take the number of active listings and divide it by the total number of sold transactions within the same month to give us the months of inventory.

To calculate the months of inventory for any given market:

  • Find the total number of active listings on the market last month.
  • Find the total number of sold transactions for last month.
  • Divide the number of active listings by the number of sales to determine the number of months of inventory remaining.

Supply-DemandAs a general rule, 5 to 6 months of inventory is considered to be a normal or balanced market. Over 6 months of inventory and we have a buyer’s market. If it is less than 5 months and we have a seller’s market. The smaller the available inventory, the tighter the market is. Keep in mind that these are simply guidelines and will differ from market to market.

For example, let’s say there were 8,000 active listings last month and 1,000 closed transactions. That leaves us 8 months of inventory remaining on the market and also tells us that we are in a buyer’s market.

If you are in the market looking to buy, calculating the months of inventory can give you an indication of how negotiable sellers might be. A large number, say 12 months or more, would mean that sellers have a high level of competition and will probably be more flexible on their sales price and terms.

On the other hand, if you are a seller trying to sell your property, the months of inventory will give you an indication of the level of competition you will face. Selling in a buyer’s market will require you to put some serious thought into your pricing strategy and any incentives you may want to offer.

Filed Under: Economy, Housing Market Tagged With: Housing Market, housing supply, Investment Properties, Investment Property, Real Estate Investing, Real Estate Investment, Real Estate Market

8 Tips To Becoming A Successful Landlord

December 31, 2018 by Marco Santarelli

How To Become A LandlordHow To Become A Landlord

The ultimate goal of investing in rental property is to turn a profit.  To ensure that you achieve that goal it is essential that you follow several critical guidelines. Most of us dream of becoming a landlord but it an easy or a difficult job? Before you start searching for a home to rent, you should think about the responsibility that comes with being a landlord to your tenants. If you’re interested in investing in real estate, the single-family rental market might be a good option. Being a landlord can be a profitable venture that provides a steady income stream while your property appreciates in value. You might also be able to enjoy certain tax advantages while you build equity in the home.

Here are 8 valuable tips for becoming a successful landlord and start a rental property business.

1. Screen Your Tenants

First, always make sure that you check tenant references. This is the first step of becoming a successful landlord. This can be a burdensome step and many landlords overlook it because they feel as though they have good instinct when they meet with the tenant.  But not checking references can lead to a number of problems later on.  You will uncover a wealth of information about potential problems before you rent to a prospective tenant. It’s also worth the time to do a background and credit check on all potential tenants. There are several online tenant-screening services available, and you should be sure to check potential tenants’ credit scores. You should also conduct an interview to make sure you’re comfortable interacting with them, and check references, especially from employers or past landlords.

[Read more…]

Filed Under: Property Management, Real Estate Investing Tagged With: Investment Properties, Investment Property, Real Estate Investing, Real Estate Investment

Why are Billionaires Buffett and Trump Bullish on Real Estate Right Now?  (Part 2)

May 21, 2012 by Marco Santarelli

In Why are Billionaires Buffett and Trump Bullish on Real Estate Right Now? part 1, we stated that the Federal Reserve is committed to stable, steady long-term inflation.

But what about all this talk of hyper-inflation?

There are some doom-and-gloomers out there heralding hyper-inflation.  Hyper-inflation means you wake up in the morning and a pound of coffee is $5, but when you go back that afternoon, it’s $7 and by the following morning it’s $10.  In other words, the dollar is in free fall and it takes more and more dollars to buy the same goods and services.  It’s happened many times in other countries in just the last 50 years.  It’s ugly, especially for those who don’t know how to see it coming, how to prepare and what to do when it happens.

Now we understand the argument for hyper-inflation and it’s a good one.  So let’s take a look at why real estate right now makes so much sense.

[Read more…]

Filed Under: Economy, Housing Market, Real Estate Investing Tagged With: Donald Trump, Economy, Foreclosures, Housing Market, Inflation Hedge, Investment Properties, Real Estate Investing, Real Estate Market, Rental Properties, Warren Buffett

Why are Billionaires Buffett and Trump Bullish on Real Estate Right Now?

May 15, 2012 by Marco Santarelli

When we interviewed Donald Trump a couple of weeks ago, he told us that NOW is a great time to get into real estate – and he specifically pointed to houses.

Fellow billionaire, Warren Buffett, appeared on CNBC a couple of months ago and essentially said the same thing.  In fact, he said if there was an efficient way to do it, he'd like to buy 200,000 single family homes!

You may or may not agree with them at first blush, but when two billionaires (neither of whom are trying to sell you houses) both say the same thing, it's probably worth taking a closer look, don't you think?

[Read more…]

Filed Under: Economy, Housing Market, Real Estate Investing Tagged With: Donald Trump, Economy, Foreclosures, Housing Market, Inflation Hedge, Investment Properties, Real Estate Investing, Real Estate Market, Rental Properties, Warren Buffett

New Investment Condos – 30 Month Lease-Back with Positive Cash-Flow

February 17, 2009 by Marco Santarelli

We just announced our latest real estate investment opportunity located in Ocean Springs, Mississippi.

Predicted by CNN Money to average 5% annual appreciation for the next 5 years. Forbes rated the Go Zone market as one of the Top 3 areas to invest, and Realtor.com rated the Mississippi gulf coast as the number one appreciating market of 2008.

This investment opportunity features a unique 30-month lease-back program that covers 100% of your mortgage payment, property taxes, homeowner association fees, management fees, maintenance costs, and utilities!

We also have several lending options available including some private financing options with 90% to 100% fininacing.

The investment is also Go Zone qualified for the 50% “bonus depreciation” provided by the IRS.

Visit our website and download the FREE Property Info-Pak for complete details, or just click here: Ocean Springs Investment Condos.

Filed Under: Real Estate Investing, Real Estate Investments Tagged With: Investment Properties, Investment Property, Real Estate Investing, Real Estate Investment

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