If you want to be a successful real estate investor, you should have a clear understanding about the real estate cycle. Then you can keep an eye on it and figure out the best investment opportunities available out there for you to grab.
What exactly is the real estate market cycle?
Real estate cycle is one of the most important concepts that any real estate investor should keep in mind. If you have this understanding, you will be able to ensure your success in the future as a real estate investor. The four phases of the real estate cycle include recovery phase, expansion phase, hyper supply phase, and the recession phase. All these phases are making the overall real estate market to shift significantly. Therefore, it is important for all the real estate investors to stay on top of the toes while having a good understanding about the real estate market cycle.
The understanding you have about the real estate market cycle will be helpful when you are trying to locate the best opportunities that exist out there. There are numerous vibrant and successful strategies available for you to apply during the different phases of the real estate market cycle. The key to ensuring success in here is to understand the market and go ahead with making the right investment decision. This will help you to ensure successful returns out of real estate investments, even in a sluggish economy.
Exploring the 4 stages of real estate market cycle.
When you take a look at the real estate market cycle, you will be able to discover four unique phases in it. They include recovery phase, expansion phase, hyper supply phase and the recession phase. As an investor, you need to be aware of the distinct differences that exist in between these phases. Then you will be able to match the investment strategy that you have with the cycle phase to end up with positive results.
1. Recovery Phase
The real estate market would be at the lowest point at the recovery phase. There will be a large number of foreclosures and a high rate of unemployment in this phase. New constructions begin and the pricing will begin to stabilize during the recovery phase as well. In the meantime, the vacancy rate would decline.
If you want to purchase low, the recovery phase is the ideal time to go forward with. Then you can hold the property as the prices will go up in the future. This can also be considered as the best time available for you to locate a deal on core property. If you are a risk taking real-estate investor, you can think about investing your money on distressed opportunistic property. You will be able to get them at a bargain price as well. However, this risk is totally worth as you will be able to sell the property at a higher price tag in the future.
2. Expansion phase
Expansion take place after the recovery phase. This is where the real estate market would begin to expand. The new constructions will increase, and the prices will rise. In the meantime, you will notice that unemployment rates are going down. It is during the expansion phase, where the GDP rate will come to a normal level and the growth of jobs would strengthen. The rent prices will increase along with the increasing occupancy rate.
During the expansion phase, you will be able to discover a perfect balance in supply and demand. This is the best phase available for value add real estate investors in the real estate market cycle. You will be able to purchase properties at a discounted price. Then you can invest your money on improvements and sell it at a higher price tag in the future. However, the number of investment opportunities available for you to grab in this phase would be relatively low, when compared to the recovery phase.
3. Hyper supply phase
Hyper supply phase is the next phase that you can find in the real estate market cycle. The developments that take place during the expansion phase contribute towards hyper supply phase. In this space, you will be able to discover an abundance of space available. The demand available for space will reduce due to economic conditions. The rent will decline, and vacancies will pop up along with time.
During this phase, some of the core investors go ahead and sell ahead of the leasing market that they will have to face in the future. However, the high occupancy core properties and leases with longer periods will make the decision to ride out. This phase has the potential to last for a longer period of time as well.
4. Recession phase
After the hyper supply phase, recession phase would begin. During this phase, the supply of real estate would overshadow the demand. This can give life to a high vacancy rate. The construction of new developments would stop. The prices of properties will drop as well. Therefore, people will be able to purchase homes at an affordable price.
During the recession phase, it is common to see rent reductions. The property owners tend to provide concessions as well. This is the best time of the real estate market cycle available for the opportunistic investors. They will be able to locate a foreclosure or a disclosed property at rock bottom prices. Then they can improve the asset and sell it with a higher profit margin in the future.
Now you have a clear understanding about the real estate market cycle and the four phases that are linked with it. As a real estate investor, you need to figure out that these four phases will not take place for equal time periods. The recovery phase is the quickest, but it can also last for a longer period of time. Therefore, you need to be careful when you analyze the market and go ahead with the investment opportunities.