Do you understand real estate cycles and know how to profit from them? In this article, you will find out how by knowing the real estate cycles you can make money in any market. Read further to learn more.
Knowing the real estate cycles can you help make profits. If you
start with buying low, buying in the low part of the market, basically
you are in a position where construction has been declining in your
area. Because a lot of inventory is on the market, vacancy rates are
high.
The cycle always works this way, in clockwise order—never
counterclockwise. However, it’s different for each product. Perhaps the
cycle for Class B office buildings may be different from the regular
cycle. Just because you are in a slow period in the residential
marketplace, this does not necessarily mean that Class B office
buildings are slow.
If you have high growth residentially in any particular area due to
heavy migration to the area, new industry may be coming in, causing the
area to grow. Ultimately, this has some impact on the retail
marketplace. Of course, this affects the small office industry, but
that doesn’t always have an equivalent impact at the same time—cycles
can be different. Also, cycles could be three or four years long or even
ten to twelve years. Unfortunately, no one can tell you how long a
cycle is going to be. But knowing the real estate cycles can help you
plan accordingly.
Although there are some signals that may alert you to when a cycle is
moving into its next phase, it could be different for different prices
or different products, and have variable timing. But, in a Buy Low
scenario, you are dealing with a high vacancy situation when there is
actual high vacancy.
So, how does that affect the people who own an older building? Their
vacancy rate increases even more in a period of high vacancy and perhaps
they finally give up and say, “We’re done. We made our money in this
building and we want to retire. We don’t want the hassles anymore.”
These are the kind of people who might be in position to sell at a
reduced price. So, you are in a position where you can make maybe some
excellent deals in a high vacancy area, where every property calls out —
Buy Low.
There is little or no construction activity going on at this point in
time, because there’s too much inventory on the market. Therefore, the
supply that’s out there is being eaten up. As this occurs, you get into a
situation where the vacancy goes from high vacancy to low vacancy.
Next, rents go up. As rents begin to increase, the value of property
increases, because the value of property is a function of the income
that the property produces. Now you are in what is called Sell High.
This is when you can usually maximize profit on a property because the
escalating rents are rapidly increasing in value, in the residential
section as well. Usually, residential and the apartment cycles are
reasonably close together.
When you get into the Sell High part of the real estate cycle, with
values going up, construction restarts. However, one of the problems in
this industry is that there are no construction monitors. Who can tell
them to stop? Overbuilding commences because everybody wants to get into
the game and that drives rent concessions. Signs start popping up again
in the area on every major apartment complex —“Two Months Free or No
Move-In Costs.”
Some serious competition is vying for the market of available tenants,
so they start advertising incentives. Many of these landlords will try
reducing rents to entice tenants.
Tip: Never reduce your rent!
By knowing the real estate cycles you can profit in any market!
Stew Spence invites you to learn to earn high and even INFINITE
returns investing in commercial real estate with a group (on money you
used to have sitting in pathetic CD's at 4% or less) when you become a
Select Member with America's #1 Real Estate Network today! Join us for
an upcoming educational presentation to get information or to get
started now: ,com/863">Commercial Investing Webinar
In 1989, Stew Spence became a full time real estate investor, and has
bought, sold or been on the business end of hundreds of real estate
transactions, both large and small, numerous diverse types of
transactions totaling over $40,000,000 including commercial, mobile home
park, multi-family, condo conversions and land development projects
with a specialty in foreclosed properties needing rehabilitative
construction. Now semi-retired, Stew is still an active investor and has
trained thousands to succeed with real estate. Today, he is also
retained as a Board of Advisors member with HIS Real Estate Network, a residential and commercial buying group.
