Real estate is a fickle beast. There are ebbs and flows, ups and downs, and...well, you catch my drift. Real estate investing is not like buying a car or a computer or a new refrigerator where you can point to a certain day on the calendar and know what something will cost on that day. Real estate investing is all about trends and the key is to be able to recognize trends. Is it a buyer's market or a seller's market? Is it a market that's in transition from one to the other? If so, how rapidly is the market changing? More importantly, is the information I am watching actually telling me something or is the trend a very subtle one meaning that even as it moves - in either direction - the timing is still good for buying real estate.
There are mountains of data one can consume to try to find detailed answers to these questions, and it's certainly a good idea to read -- and understand -- as much of it as you can. That said, at the end of the day, there are real estate strategies that you can use that don't require an advanced understanding of economic theory. A simple strategy that may not necessarily require as much data as say purchasing a property where your strategy is to sell for retail very quickly, is to purchase properties for long term buy and hold. While the research may not be as much, it is every bit as important. Before you jump in with both feet though, let's look at a couple of indicators that it may be time to buy in a particular market.
What Are Interest Rates Doing
Right now interest rates continue to hover at historic lows. They are not as low as they were 6 months ago, but forecasts continue to have rates staying well below 5% for qualified real estate real estate investors if not below 4%! I do not put the exclamation point their to emphasize how low the rates are. I put it there to emphasize that the rates will not remain at this level for ever. They simply cannot remain this low. Does that mean rush out today? No way. That is not what I am saying. I just want you to know as a reader that Interest Rates continue to remain low and extremely attractive for real estate investors. The markets have fluctuated a little but not too much, which tells me there is still time for us as investors because the monetary policy makers do not want to hit the brakes on the housing rebound yet. They feel the low interest rates are needed to spur more activity and we should be taking a look at being active!
If Businesses are Popping Up
If there is a substantial increase in business construction, it may be time to buy. New businesses hire employees, and many employees want a place to live that's close to work. And certain types of businesses (retail, dining, etc.) act as a magnet for people looking for a place to live. If you can find properties at the right price at the beginning of the cycle, you'll be in a great position to sell or rent to others. We call this finding centers of "path of progress". Areas of the country where businesses are growing , expanding and building new operations. Then within those areas, there are neighborhoods and zip codes where new businesses are popping up and roads are being resurfaced and schools are being refurbished. These are great areas and represent "path of progress' areas. You can expect stability and possible appreciation in these areas.
Keep Your Eye on the Prices
Be familiar with the pricing in the market where you are going to invest. If properties are going for more than their asking price, there is a lot of competition and you're not likely to get a good deal. If, however, they're going for substantial less than their asking price, now might be a good time to purchase quality properties at a lower price than in a normal market. So often, investors have been known to choose houses first becuase they were "cheap" and then they start thinking about the market. That is, if they think about he market at all. The house is the last thing a real estate investor who is trying to decide about timing should be considering.
The more you know and can understand about emerging trends in your market of choice (for real estate trends can be very localized), the more likely you are to be able to make informed decisions about when and what to buy.
I want you to take notice of one thing. I did not mention houses until at the very end. I cannot stress enough that great timing is so important and quality due diligence about markets, teams and emerging trends is what keeps real estate investors safe. Be sure and exercise good judgment and pay attention to the signs that it is time to buy!
What real estate strategies do you rely on to spot emerging trends? How do you decide when it's time to buy? Tell us (and your fellow Memphis Invest blog readers) in the comments!
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