How To Identify a Profitable Real Estate Target Market

How can you tell if a market segment will be profitable? There’s no hard and fast rule that will tell you “yes, this is profitable” or “no, it isn’t”. However, researching the data on your target market can be useful.

Here’s a quick way to analyze a market if you have a geographic focus. (Note: you’ll have to do some research and crank some numbers. Most of this stuff isn’t something you’ll find just by searching the internet.)

1. Find the find out how many homes are in your particular area of focus, the turnover rate for the last 6 months, and the average selling price from your local NAR organization or Chamber of Commerce.
2. Research all the homes that sold in the last 6 months within that target market. Make note of all the real estate agents that completed the transactions.
3. Look for the 3 top real estate agents in your target market - those that completed the most transactions - within that time frame. Divide the total number of houses sold by each real estate agent during that time frame by the total number of homes sold during that time frame. That’s their market penetration.
4. Multiply (the number of homes in your area) x (turnover rate for last 6 months) x (market penetration of one of the top 3 real estate agents) x (what your commission would be on the average selling price)

This will give you a rough idea of what your top three competitors in the market are making. Now, compare what they’re making in 6 months with what you’d like to make in 6 months.

Also, look to see if any one or two agents are dominating the market - meaning their total market penetration is at least 40-50% or higher. If so, you’ll probably have a difficult time entering the market. If no agent is making a lot of money from this market, that may mean it’s being underserved.

Of course, you’ll have to look at the trends to make a decision. Do the numbers look good? Is there a good turnover rate? How long are homes staying on the market? What’s the average sale price? Now look at those numbers from a year ago and compare. Do the numbers look like they could be profitable to you?