(DOM here stands for “days on the market”.)
When looking at potential flip, it’s always important to get real clear on what the expected exit price is. And, when considering exit prices, it’s critical to do solid work on the current comps (comparable sales) in a given subdivision or neighborhood.
But when I was first starting out, I didn’t pay attention to the days on the market when doing my comps. And it ended up costing me.
When I was making my first house purchases a few years ago, I was so enamored by discounts to the general clearing price in a particular subdivision that I would jump at a deal no matter where it was located in the city. If I had clear evidence of sales figures from the last six months in a particular subdivision showing a specific clearing price, and I thought that my exit price would be decently under those clearing prices, I took the deal. Sometimes they were just screaming deals (or so I thought) with mouth-watering margins in subdivisions that to my naked eye looked fine, or even better than fine. Eventually I found out that a subdivision that looks fine to my naked eye is sometimes not the same thing as a subdivision that people want to move in to. ..Doh!
A brief digression..
The north side of Houston is a whole series of subdivisions that go on for miles. In fact all of Houston itself is just one giant patchwork of subdivisions. And by Houston, I’m actually referring to Harris County which is the real area that everybody just calls Houston. Harris County is the third most populated county in America. A whole teeming mass of subdivisions, most of which contain houses with construction dates newer than 1980.
Houston is a newly constructed city. In fact, it’s a disposable newly constructed city. If something gets too old here, we tear it down and put up something new. There are no zoning laws, no regulations that tell you that you can’t do something, no barriers, and no real historical preservation societies to speak of. We’re the great capitalist experiment and Houston is the natural result of that great standard of Texas: a seemingly endless supply of buildable land everywhere.
A few years back, I jumped on a deal in the Timber Forest subdivision in Humble on the north side of town. The margins looked super sweet to me. I bought a 2,300 square foot house there for $80,000 with the expectation that I’d be able to sell it net of rehab for $140,000 if things went great, or maybe $130,000 if I really had to sell it under the market to find a buyer quickly. Little did I realize that no one wants to live in the Timber Forest subdivision. Yes, there are pretty houses there. Heck, it’s a pretty subdivision. But Timber Forest is located just off the road that everyone drives down to get to the super hot community of Atascocita. I eventually realized that no one really wants to live in Humble, but they’re certainly happy to drive right past it to get to Atascocita! …Grrrr…
After I finished my house and got it on the market, it sat for weeks with maybe one person every fifteen days looking at it. And it was such a pretty house! It was gorgeous! Heck, I wanted to live in it! But it didn’t matter. No one wanted to live in that subdivision. They wanted to drive right past it to get to Atascocita Meadows and Atascocita Trails and Atascocita Shores. …Grrr….
Eventually I had to cut price on the house just to get out of it. I actually can’t remember how long it sat on the market (I blocked that out) but it was months.
Around the same time that I finished the Timber Forest house, I started working on a house I’d bought in the Lakewood Forest subdivision in northwest Houston up on the way to Tomball. When I was finishing that house, I stuck my usual sign in the yard to get ready for listing it on the MLS. The house never got to the MLS. An attorney, who’d been driving around the area looking for a home, walked right up, took a tour of the property, and sent me an offer the next day. The DOM on that house was minus three! (i.e. I hadn’t even listed it yet)
Needless to say, these two experiences taught me a valuable lesson. Even if you think you’ve found solid sales prices for comps in a subdivision, stay out of areas with listings or recent sales with high DOM numbers! Ask a broker to make sure to give you the DOM numbers on all the comps they send you. Don’t trust a comp price unless it comes with a DOM number. This will save you lots of headaches.
The online MLS system at HAR.com provides a good deal of information to public users about real estate here in Houston. They actually have a list of the 50 Most Viewed Subdivisions. Click here to see the list.
Lakewood Forest is #23 on the list out of over 10,000 subdivisions in the Houston area. – Wow – That helps explain why my house was bought before it even got listed. If you did nothing else but focus on just 10 of the 50 most viewed subdivisions in Houston, you’d do very, very well. Heck, you’d do great!
I wish HAR.com listed the 50 Least Viewed subdivisions. That would be awesome. Then you could easily stay away from them. But no matter where you are or what city you’re in, try to figure out a way to make lists like this. See if your broker can break out the subdivisions for you with the highest DOM figures and the lowest DOM figures and then adjust all of your activity accordingly. Forget about mouth-watering deals in less desirable subdivisions. It’s just not worth it, trust me. Stay in the areas where people want to live and you’ll do great.