In order to be successful in the real estate business, it is vital not only to research, but to learn and to become familiar with the current market trends. Understanding the market cycles, you as the potential buyer, can make smart investment decisions by developing a strong market strategy. This strategy can help you to weigh out the potential risks and rewards to investing at any point in the market cycle, and it imperative to making a profit in the area of real estate.
The first advantage to knowing and understanding the market cycles is the ability to know when you are getting a good deal. Many times sellers will overprice their properties based on the belief that their property’s value will appreciate. Let me tell you, it is not wise to buy solely on expected numbers. If the property does not work on paper, why would it work at all?
When starting your real estate career, it is wise to use real numbers rather than the hopes and dreams of the sellers made up numbers. A mistake like this can take you out of the investing game early. To make the most money in real estate always use actual numbers and buy properties with signs of growth and appreciation. If you study the market, and know you are in a current down cycle, it is important to know you are buying a property for a good deal. A deal that allows you to hold on to the property during the down time, with the possibility of still making profit.
Also, if you are aware that a down cycle is going to occur, you want to make sure that you have the freedom to gather up your resources in order to take advantage of the new buying opportunities that you may have. As a buyer, you can find a great deal in the down market because of all of the sellers who are looking to get rid of their properties. Being ready in a situation like this can set you up for some money saving deals that will bring you a great deal of profit later on.
Knowing the market cycles can help you design a proper exit strategy for selling your existing properties. If you buy a property for a certain price, you want to sell that property at an even higher price in order to make the profits that you are looking for. In order to make the most for your property, it is imperative, that you as the owner try to sell your property at the top of the market cycle, or in the so called “boom phase”. In this phase of the cycle, you have the opportunity to bid up the price of your property due to short supply. This cycle is relatively short, however, and only tends to last between six and 12 months, which leaves many unprepared investors with a missed opportunity.
Investing for an entire property cycle, or for around five to ten years, can give you a clear picture of the market cycle from boom to bust. Without market experience you should consult with someone who understands the real estate market cycles. It is important to get a long-term view in order to be most advantageous at exploiting every possible marketing opportunity. It is important to remember that while there are ideal times to buy and sell a property in a market cycle, a savvy investor can make money in any phase of the cycle by simply becoming familiar with each phase and identifying the characteristics, knowing and researching the best strategies for each phase, and by having the ability to recognize when the next phase is about to begin.
For example, during a contraction, a smart investor who knows the market cycle may only look to buy properties that are largely discounted, ensuring a large cash flow. During a recession, it is important to remember to buy properties that are below market value. A smart investor will know that buying a property at this point in the cycle should only occur if you are planning on holding that property for a long period of time. As the market begins to recover, it is vital to invest your money into properties that have taken the largest fall in price, as it is these properties that will gain their value back at the fastest pace. As the market begins to expand, it is important to recognize that you may not be getting deals below the market value. You want to put your money into areas that are in high demand, ensuring that you will get good cash flow.
These are just a few things a savvy investor can do in any area of the market cycle. Doing your own research and becoming familiar with what takes place can ensure your success at becoming profitable in real estate. Knowledge equals dollar signs in the area of real estate. Staying a step ahead can keep you ready for anything that may come your way!