Buy Income Property Using Clues From The Real Estate Market Cycle

Posted on: April 15, 2011

Categories: Buy

Author: lbuen

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Buy Income Property by woodleywonderworks via Flickr

Buy Income Property During The Bargain Season

Like some consumers looking forward to end of season sale, Black Friday sale and other sale events, savvy real estate investors also lick their lips over rock-bottom prices of homes and cut-rate interest rates. These are two indicators that led many real estate experts to say that now is the best time to buy income property. Owing to the overall ailing economy and stringent loan qualifications, demand for mortgage has slackened. This pushed prices of real estate and money to nosedive. For real estate investors, this is the season buy.

4 Seasons of The Real Estate Market

To maximize your profits when investing in real estate, you must have a good grasp of the phases of the real estate market. It cyclically goes through Phases 1 to 4. The Buyer’s Market spans Phases 1 and 2, while the last two phases involve the Seller’s Market. The different interplay of market forces in each phase gives real estate investors clues on what appropriate strategies to implement during certain stages to rake in more profits and avoid calamitous actions.

Buyer’s Market: The Best Time To Buy Income Property

Phase 1 of the Buyer’s Market is characterized by plummeting home values. Despite their low prices, demand falls, that is why, homes remain unsold and linger in the market for prolonged periods of time. The market is crammed with unsold properties. Today’s glut of foreclosed properties is an indication that we are in the buyer’s market. Most people today hesitate to buy income property or even a primary home because maybe they just lost their homes or they do not qualify for a mortgage loan. Even if they can get a loan, newbie investors may still dither to buy income property for fear of seeing their properties inherit the fate of homes which are worth less than their mortgage.

But for savvy investors, this is the time to stake out and wait for the market to hit bottom. Of course, there is no definite way of exactly determining this but when prices show signs of leveling off, it is a signal for you to pounce and buy income property. Prices may still go down but learn to determine when the market is about to shift. Your game plan here is to acquire while prices are low and hold on to your properties until the Seller’s Market comes when prices go up.

During the Phase 2 of the Buyer’s Market, prices of properties stop declining and a some start to increase at faster rates. The market sets out for a complete upturn. Properties that have remained in the market start selling. Inexperienced sellers are happy to sell their properties that has been stuck in the market for so long. You can make offers to sellers that are almost within their asking price. Just make sure that you have done the numbers and research of the market to determine value of the property.

Seller’s Market: The Riskiest Time To Buy Income Property

During the Phase 1 of the Seller’s Market, prices of properties are increasing and homes are selling at an escalating rate. The demand for properties has also begun to rise. This is the time for you to sell the bargain property you cheaply bought during the Buyer’s Market. You can still buy income property if you can get it at the right price but be fully aware of the worth of properties. Drop overpriced properties from you shopping list. This phase is great for flipping properties.

However, when Phase 2 of the Seller’s Market sets in, it may be time for you to rest from buying. This phase is considered the most dangerous period to buy income property since it can instantly raze you to the ground. The rate of selling properties declines as market demand goes down while sellers’ asking prices still remain exorbitant, hence, inventory starts to accumulate. With the inventory build up, stubborn sellers figure out the shifting of the market cycle, they start lowering their asking prices. Buyers wait for the market to reach the lowest point before they re-enter the market. This could take six months to one year to happen. And the market cycles back to Phase 1 of the Buyer’s Market.

To help you determine the best time to buy income property, understand the real estate market cycle as this has been going round for the last 150 years and is showing no indication to stop anytime soon.

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