Real estate investing as with most everything is cyclical in nature. Varied of course by location, demographics, and economical forces. There are times that real estate investors are bullish for the big cash flow (such as over the past few years). When real estate values hit rock bottom you can acquire properties cheap and as a result the cash flow is incredible. As real estate values rebound the favored strategy is capital growth investing. (Investing for big home value appreciation) I believe 2014 will be very favorable for the capital growth investor.
Let’s take a look at where we are positioned going into 2014.
Please note however ( as I am always saying) real estate is all about location and every location has its own market positioning) from a broader picture I believe in general the typical market that investors will be wanting to invest in 2014 are capital growth markets.
Here is what a capital growth market should look like:
• Home construction is on the rise
• Unemployment levels are falling
• Job growth and wages are stable or increasing
• Consumer confidence is on the rise
• Speculators are buying: (caution) do not get wrapped up in what everyone else is doing here. The more people see others buying the more they start buying. The problem is when everyone follows the activity of the masses no one is observing the indicators telling you when to change strategies. As a result people buy when they should no longer be buying such as in late 2006 and into 2007. Watch the market indicators and know when to buy and when to sell. Simply stated this indicator is given too much credence, do not buy just because you see others buying, make sure all other indicators are positioned for a capital growth investment.
• Market time for homes for sale is short
• Fix and flip investing is also strong as anticipated home value increases will be strong.
So buying distressed property at a good price and rehabbing for a profit now is less vulnerable and profits are more plausible. Capital growth investors rely less on cash flow and more on appreciation.
It is said that better than 90% of today’s millionaires made their fortunes (at least in part) through real estate. These fortunes were made through capital growth investing. Capital growth investing is the best wealth building principle for building wealth. When proper diligence and purposeful intentions are exercised the capital growth investor can do extremely well. The caution you want to take is not to over leverage yourself and make sure that cash flow does still exist. Cash flow may be less but it is imperative that should any sudden and unexpected changes to the market occur you can always fall back onto cash flow to support the investment.
Capital growth investing tends to be more of a speculative investment. It is therefore important to be diligent in understanding what makes up a great growth market to strengthen your sustainability of the investment.