The 4 Cycles to Real Estate Investing – A 4 Part Series (Part4)
(The Cycle 4 Sellers’ Market) Probably the most neglected and most misunderstood cycle of real estate investing is the cycle 4 seller’s market. Everyone likes to buy real estate at the bottom of the market. Over the past few years since the economic collapse people have been eager to buy at the bottom and reap the rewards. However to reap the best rewards you want to properly exit a property. Most everyone understands the concepts of buying low and selling high but most people fail to identify when the opportunities are knocking. If you were strategic and purposeful you bought within a buyer’s market, that’s half the equation to a purposeful investment.
You want to buy and hold property (not buy a property and hold it)
There is a costly distinction here. Buy and hold is one of the top priorities that a true investor has. Investing is all about letting your initial investment grow over time. It is about buying a property and riding the cycle of it’s markets economic prosperity. Buying a particular property and holding it forever is not necessarily the game you want to play. You want to buy property and you want to hold property. Buy when you can buy low, ride the wave of growth then sell that particular property and reposition the investment dollars into a different location and buy a different property then hold it. (And repeat) You essentially want to hold property during the market surges and you want to reposition the property when the markets dictate.
The Cycle 4 Sellers’ Market
This is the cycle where you want to sell and reposition your assets from a seller’s market into the next emerging buyer’s market.
Distinction of “Cycle 4 Seller’s Market”
Demand still remains high but the inventory is also growing: (signs that the market is transitioning and the public has not yet identified with this change.
• Inventory levels are increasing
• Market times are increasing however sellers are still getting their prices
• Speculators are buying
• New construction is becoming abundant with the likelihood of overbuilding
• Demand for new construction is rapidly rising
• Prices of new construction is rapidly rising
• Business and jobs show signs of slowing down
Strategy for buying: SELL:
• This is the cycle to sell
• Use your money to 1031 exchange into another property within a cycle 2 buyer’s market
This is the one cycle that you only want to sell. NOW is the time to buy in another market that is positioned as a buyer’s market. If you read and internalize the distinction of this market you can relate it to a tea kettle. The steam is building and building. Everyone wants to buy, the prices are rising, and the emotions are running strong. Everyone is buying; buying buying and you too want to get in on the action.
Meanwhile the economic indicators in the background are silently telling (those who take notice) that things are overheating. New job creation is weakening. Days on market are starting to grow. The price increases are no longer sustainable; the home values are overvalued for the area. The market shift is underway.
Unlike the other 3 markets this is the single most important market to master. The most overlooked cycle. Behind the other 3 cycles remains a different type of opportunity for any properties you own. Behind this cycle there are big changes. Changes that will slow down (or halt) your investments. This is the cycle where your investments are flat or falling so in the spirit of performing a great exit strategy you want to reposition before this cycle transitions.
BONUS DISTINCTION: WHEN AVERAGE DAYS ON MARKET HITS 21 DAYS OR LESS YOU WANT TO HAVE YOUR PROPERTY ON THE MARKET OR SOLD BECAUSE THE CYCLE CHANGES ARE UNDERWAY.