The 4 Cycles to Real Estate Investing - A 4 Part Series (Part 1)
As seasoned investors know, you indeed make your money going into the deal. You may realize the profits at the end when you sell but it is buying the property right that makes you the money. On that note I am always asked when the best time to buy real estate is. The answer is always NOW. I know on the surface that sounds impossible, once you understand the 4 cycles to real estate investing you will create the clarity to understanding why NOW is always the best time to buy real estate. Understanding the real estate cycles is the key to investing in real estate now. There are different strategies for each investment cycle. Once you identify the cycles a market is in you can strategize how to invest, or perhaps WHERE to invest.
Of course there is no such thing as a national real estate market. All markets are local and researching the position of your interested market is of utmost importance. The real estate market is always said to be either a buyers’ market or a sellers’ market. It is pretty much determined that if there is a 6 month (or less) supply of homes for sale you are in a sellers’ market. Adversely if there is 6 month supply (or more)of homes for sale you are in a buyers’ market. This may be true but I believe it needs to be divided a little more for investing clarity.
Let’s take a look at the four investment cycles. 1. cycle 1 buyers’ market 2. cycle 2 buyers market 3. cycle 3 sellers market 4. cycle 4 sellers market
There are dozens of considerations to look into to decide where a market is positioned. For the purpose of this post let’s look at the distinctions of each market. This may help you determine the positioning of your favored market. As we mentioned earlier there is no such thing as a national real estate market. So depending on where you live or where you are interested in investing the markets may look different. Today let’s focus on the markets in the Cycle 1 Buyers’ market.
This is the market where real estate is starting to present some great opportunities and the tell tale signs are starting to emerge.
Distinctions of the Cycle 1 Buyers Market • The home market is overbuilt and oversupplied and the public is now finally aware of this overbuilt situation. • Housing inventory levels are higher than are needed • The demand for housing along with prices are falling. • Homes are now overpriced for the demand • The market time increases • Employment has peaked • Foreclosures are rising • Both investment property values and rents are dropping • Layoffs are happening in the construction field.
A lot of this information can be ascertained by reading local papers and watching local news. People will become innocent bystanders waiting to see what will happen next. Those who are purposeful and educated can see opportunity coming for investment real estate. Right now may still be too soon but the market is within the Buyers’ market category.
Here is the Buying strategy for this market cycle.
• Cash Flow: the only value proposition a property has in this market uncertainty is huge cash flow • Home appreciation may likely follow but should not be factored into your buying decision during this time.
Next post is the most exciting cycle ( the cycle 2 Buyers’ market)/ the market wealth is created. Stay tuned.