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Understand The Real Estate Cycle So You Can Buy Low & Sell High
>>>Download a PDF Chart of The Real Estate Cycle<<< Skip To The Four Stages of The Real Estate Market Cycle Since discovering the real estate cycle I have never made more money in all my life... (By the way, this is one of the most important lessons you will ever learn about real estate investing. Your success as a real estate investor is tied to knowledge about real estate cycles.) In 1995 I had been in real estate as an investor for only a few years. My plan at the time was to buy and hold rental properties. When I first started investing in real estate I knew almost nothing…fortunately I did sit down and work out a simple plan that I thought would make me a rich man one day... My plan was to buy as many rental properties as possible every year and hold on to them for no less than 10 years. In my first year I bought 10 rental properties. At the end of the 10 years I was hoping to build up enough equity and pay down my mortgages enough that when I sold one property, it would give me enough cash to pay off the mortgage on another rental property owning it free and clear. Understanding this I figured at the end of year 10 I would own four or five houses paid for worth $800,000 to $1 million and would have a passive income of $60,000 to $80,000 per year. Everything looked so good on paper. BUT, there was a major glitch.... The real estate market in my area had started crashing in 1996 so by 1998 I could not sell one of my properties because I owed the bank more than the property was worth. I had bought a one bedroom with a den and one bathroom for $98,000 in 1995 and in 1998 it was worth $56,000 I owed more than $90,000 to the bank. Now the good thing was I still had positive cash flow. Not only on this property but on all of my properties... All the headlines in the newspapers and on TV was doom and gloom…it was the end of real estate... Record foreclosures, record job losses, record unemployment…sound familiar? Not knowing what to do, I turned to my circle of influence - my friends and family. They all thought I was nuts for getting involved with real estate and they were telling me to walk away. "Let the bank take the properties back", "File for bankruptcy!". What they were telling me made some sense but somehow deep down inside I didn't think they were right. I did massive amounts of research and reading and that's when I discovered There are strategies that apply to each part of the cycle that I'll be sharing with you. Once you understand and apply the real estate cycle you will have a very powerful tool to ensure you're investing wisely to maximize your profits. Smart real estate investors use knowledge of cycles and gain an edge over other investors. When you have access to future market trends you will know when to sell to avoid staying in the market too long. Here's The Good News... * When you understand how the real estate cycle works and pay attention to what’s going on in your local economy, it provides you a clear road map allowing you to determine if you should continue buying or if should you start selling before the market turns negative. One thing I’ve noticed is you need to look to the past to see where the future could be. Every city I’ve studied has natural cycles that repeat every few years. I’ve seen real estate cycles that are 7 years long and I've seen real estate cycles that are 25 years long! Depending on how you look at it real estate cycles can be global, country, region, state, city or neighborhood specific. Hindsight is 20/20 but looking back it's easy to see. Every time there is a prolonged period in which real estate prices increase month after month the market gets over heated. Eventually what happens is there will be a down turn. Then the real estate cycle repeats it’s self all over again. What does this means to you? Lots of money... If you learn to recognize the various phases of the real estate cycle, and base you’re buying and selling decisions on that knowledge. Understanding the real estate cycle will decrease your chances of making the mistake of buying at the top of the market. The key to your successful real estate investing is knowing when to invest and when to stay out of the game. I sold all my real estate in Vancouver in 2007 and stayed out of the market until March 2010. During that time I was looking and did buy a couple of deals that I thought were great buys and quickly flipped them to another investor. In 2008, I started buying in Phoenix. The trouble is most people don’t know which stage the market is in and what action to take. To be successful you must know what Stage the market is in and what to do in that phase. Now, let's take a look at: The Four Stages of The Real Estate Cycle • Stage #1 - Buyer’s Market: Best time to buy and hold for maximum appreciation • Stage #2 - Buyer’s Market: Buy, hold and buy to flip • Stage #1 - Seller’s Market: Ok to buy if buying below market real estate and consider selling some of your inventory. Start looking for a new market to move to • Stage #2 - Seller’s Market: Avoid Buying - Time to Sell and move to Stage #1 buyers market. In each market stage there are strategies that you should be using. Keep in mind is it will be very hard for you to make a mistake that you cannot recover from in Buyer’s Market Stage #1 and #2. Taking the wrong course of action in Seller’s Market Stage #1 and #2 could be disastrous. Stage #l - Buyer’s Market: As the real estate cycle enters this stage, property values have declined and homes stay on the market for longer periods of time because people have a negative emotion toward buying real estate. Most owners are despondent and are walking away from their homes and go back to renting. There is a glut of houses on the market and demand for homes continues to fall. This is a time when you want to watch closely to inventory levels and prices for signs of a bottoming out. When prices seem to level off this is when you make your move and start buying. You will never be able to estimate exactly where the bottom of the market is. Be patient...The trick in stage #1 of the Buyer’s Market is to identify when the market is about to change. This is the time to start buying and plan to keep your properties until the next seller’s market happens. Stage #2 - Buyer’s Market: The market is heading for a full recovery. Prices stopped falling and started to increase some. Homes that have sat on the market for months are now being sold. Home values will start to increase slowly at first picking up pace as other investors start entering the market. Sellers in Stage #2 of a Buyer’s Market are usually ignorant of what’s going on. All they know and see is that they have been trying to sell their property for months with no buyer to be found. They are just happy to get an offer on their home. There’s a gloomy attitude and this is good for you. Your strategy in stage #2 of a Buyer's Market is to offer the sellers close to their asking price. Provided you have done your market research and you are sure of where you’re at in the real estate cycle. In this stage there’s no need to quibble over price as long as you know what the property is worth. Forget about finding properties at steep discounts because you will not find any…you can pay the asking price and still get a great deal! Stage # 1- Seller’s Market: Home prices are going up and properties are selling at a much faster pace. The demand for homes has started to increase because home owners are starting to get back into the market. This stage in the real estate cycle is still a good time to buy provided you are paying attention to real estate values and the price is below market value. Stay away from overpriced properties...The beginning of Stage #1 of a Seller’s Market still has considerable up-side potential especially if you plan on renting the property for a few years before selling. If you are flipping properties Do Not Get Greedy...Take a reasonable profit, sell the property and be happy with your profit. Stage # 2 - Seller’s Market: This is the RISKIEST stage to buy in. Of all the real estate cycle stages this is the one that can wipe you out overnight. Homes are not selling very fast. If you make a wrong purchase you could end up losing money or worse end up in foreclosure. Homes are not selling so inventory is starting to go up and the home takes significantly longer to sell. Demand has started to slow because buyers are starting to realize that sellers are asking too much for their homes and sales are slowing down... Sellers who have their properties up for sale begin to realize that the market is changing but out of stubbornness they keep their prices high. Some even take their home off the market expecting to relist the home for sale in a few months when prices go up and there are more buyers available to buy their home. Investors begin to realize the real estate cycle is changing which adds to the inventory levels because they start listing all their homes for sale. Everyone who's been sitting on un-sold inventory is getting nervous and begin to lower their asking price. This real estate cycle starts an avalanche of overpriced listings. Sellers with homes already listed for sale start lowering prices because they become desperate to sell. Buyers see what’s going on and get nervous so they decide to wait for prices to drop further. There is very little competition for homes so buyers start making low-ball offers. People that bought their home with the intention to flip are not able to sell so they end up going into foreclosure further adding pressure to inventory levels and prices continue to fall. Some buyers take a wait and see attitude and stop looking at properties. This causes sellers to lower their prices more. This real estate cycle can continue in a down-ward spiral from a few months to a few years before buyers start coming back into the market. Your plan of action in Stage #2 of a Seller’s Market should be to wait until the next Stage #1 of a Buyer’s Market starts or to find another real estate market that is just starting the Stage #1 of a Buyer’s Market. Usually this happens about the same time the stage #2 Sellers real estate cycle ends. I typically focus on motivated sellers and foreclosures I can buy at steep discounts and sell quickly. Take your time if you’re just starting out. Every real estate market in the US today is near or at the bottom of Stage #1 Buyer's Market. There are not many buyers looking at real estate now so you can take your time. Pick and choose but don’t take too long because this is changing every day. This same scenario has been playing itself out for the last 150 years and I do not think it will stop any time soon. There has never been a better time to start buying real estate and this down real estate cycle will make a lot of smart people that take action a lot of money. Understanding the real estate cycle can make you rich if you learn how to anticipate market changes. The indicators we look at are:
Here's a snapshot of the Real Estate Cycle: There are Four Stages: 1). Seller's Market Stage One Strategy: Buy & Hold, Flip 2). Seller's Market Stage Two Strategy: Sell 3). Buyer's Market Stage One Strategy: Buy High For Cash Flow Only 4). Buyer's Market Stage Two Strategy: Buy & Hold Real Estate Cycle Video Series Buyer's Market Phase One Buyer's Market Phase Two Seller's Market Phase One Seller's Market Phase Two Dario's Personal Experience Have You Used Knowledge of The Real Estate Cycle To Your Advantage?Do you have a great story about this? Share it! |
