An important indicator in real estate investing is how many days the property has been on the market, known as average days on market or DOM. Along with median home prices, days on market is a key metric used to evaluate a real estate market and thus, make investment decisions.
In this article, we go in-depth about average days on market and how can it affect your decision when buying an investment property.
What Does the Average Days on Market Mean?
Days on market is simply the number of days a listing has been active in multiple listing services until it is sold. When a real estate property is listed as active, this means that the seller is still accepting offers, and every day the DOM will go up until it changes to “pending” when the seller has accepted a bid.
Real estate agents often refer to average days on market, which is calculated by adding up all the days on market for all listings in a given area then dividing that by the number of listings.
Let’s look at a simple example:
Assume in city X, 6 listings entered pending status last month. Their corresponding numbers of days on market were: 10, 15, 5, 22, 38, 12. The average days on market is then (10+15+5+22+38+12)/6 = 17 days.
It is important to point out that just as prices can fluctuate seasonally, the same applies for days on market. That’s why in certain markets, DOM increases in winter when compared to other periods. Now let’s see how knowing the average days on market can help you when making an investment decision.
What Is a Seller’s Market?
A seller’s market is one where the demand for real estate property is higher than the supply. When there are too many buyers and not much inventory, multiple offers on a house create bidding wars that drive housing prices up. In a seller’s market, there is less room for negotiation which makes real estate investing less affordable.
The average days on market in a seller’s market is lower than normal. However, buying a rental property in a seller’s market is not impossible. Since competition among buyers is high, you have to plan your bid well and not wait too long before making an offer.
Related: How to Buy an Investment Property in a Seller’s Market
What Is a Buyer’s Market?
When the supply of real estate properties is higher than the demand, the market condition is known as a buyer’s market. In a buyer’s market, real estate investors have more bargaining power which creates more room for negotiating a better deal once you have found an investment property.
The average days on market is, therefore, higher in a buyer’s market since there are more sellers than buyers. Investing in a buyer’s market is more favorable when it comes to closing a deal below market value.
Related: The 2019 US Housing Market: A Seller’s Market or Buyer’s Market?
To Buy or Not to Buy?
A high average days on market is normally a favorable situation for property buyers. For some real estate investors, an extensive average days on market indicates that the seller is becoming desperate to sell his/her property and is, therefore, more willing to negotiate a good deal.
But that’s not necessarily true all the time. A high DOM can be interpreted as a negative thing for a few different reasons. For example, some real estate investors would be skeptical about the investment property and believe that something must be wrong with it, and that is the cause of the high DOM.
A high DOM for an investment property for sale can also sometimes be a result of overpricing. To avoid this problem, you must conduct a real estate market analysis in order to compare the price of a given property to other real estate comps in the neighborhood.
Another assumption that can be made about a market with high average days on market is that it is a cold one. Cold markets have lots of housing inventory or the demand is low. This could be a negative sign when looking for the best place to invest in real estate.
It is not easy to evaluate a market just by looking at one real estate metric. The average days on market is a powerful indicator if used along with other metrics. If a city has a high average days on market, acceptable cash on cash return, and affordable investment properties, then investing in such a market would be a wise idea.
The real estate investment calculator from Mashvisor is the ultimate tool that will provide you with all the metrics required to make an investment decision. Mashvisor’s investment property calculator takes real estate investing to another level by advising you which rental strategy better suits a given property- traditional vs Airbnb rentals– and by calculating your ROI based on several key factors.
To learn more about how our real estate investment tool will help you make faster and smarter decisions, click here.
Related: 5 Tips on Researching Investment Properties
Invest in Cities with High Average Days on Market
Using data from Mashvisor, we are able to compile a list of the best cities to invest in real estate that have a high average DOM, affordable properties, and what’s most important: a high cash on cash return.
1- Marion, IN
- Median price: $96,315
- Average days on market: 145
- Traditional rental income: $783
- Traditional cash on cash return: 4%
2- Camden, NJ
- Median price: $101,550
- Average days on market: 275
- Traditional rental income: $1,241
- Traditional cash on cash return: 5%
3- Sinton, TX
- Median price: $128,775
- Average days on market: 110
- Traditional rental income: $1,126
- Traditional cash on cash return: 4%
4- Trenton, NJ
- Median price: $140,947
- Average days on market: 117
- Traditional rental income: $1,510
- Traditional cash on cash return: 4%
5- Lancaster, SC
- Median price: $187,221
- Average days on market: 169
- Traditional rental income: $1,192
- Traditional cash on cash return: 4%
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
