One trick successful investors use to purchase properties is being aware of the present stage of the 4 phases of the real estate cycle. These stages identify the current status of the broad real estate market. An understanding of the buying and selling patterns during each stage of the cycle can help investors determine the best time to acquire and release properties to accumulate the greatest return. Knowing the current stage of the real estate cycle also presents a great advantage to investors, as they are able to coordinate their investment strategy with the stage of the cycle.
- The Recovery Phase: During this phase the market is believed to be at its lowest point. The recovery phase is often associated with the highest number of vacancies and foreclosures according to Ketan Patel of BiggerPockets.com. Many new construction projects begin in this phase and can place opportunistic investors at an advantage if they are looking to purchase properties at lower prices and hold on to them to perform repairs or remodels to rent or sell when the market rises in the future. This phase is also regarded as a prime time for investors looking to find core properties that are ideal for investors using the core asset investment style according to Yousif Abudra of Forbes Magazine.
- The Expansion Phase: This phase occurs after the recovery phase and the market begins to expand and rental and purchase prices begin to rise. This phase is also characterized by having declining vacancies with a growing demand for rentals according to Ian Formingle of Crowdstreet Investing. At this point construction projects are on a rise, signaling a good time period for investors using the value-add method. Investment risk is regarded at the lowest during this phase of the cycle and can present an ideal buying period for those looking to employ the core-plus style of investing and acquire properties for lower than average listing prices.
- The Hyper Supply Phase: This phase exists when the economy shifts and begins to present a greater supply than demand for rental properties. This lack of demand may be caused due to economic factors that in turn cause rental growth to slow and vacancies to rise. Many core investors often sell their properties in this phase of the cycle to avoid a decline in property values. Properties that already have fixed-term assets are best prepared for this phase of the cycle. The hyper supply phase of the cycle can often last for extended periods of time.
- The Recession Phase: In this phase of the cycle, the supply of real estate properties completely outweighs and overshadows the demand for them. During the recession phase rent reductions are common. This phase is regarded as the best time for opportunistic investors to find distressed properties for record low prices. This is also considered a high-risk period and may deter many core- asset and core-plus investors. However it may attract opportunistic or value-add investors looking to acquire bank owned or foreclosed properties. Any homes purchased during this phase can expect a long-term or delayed payout, as they will most likely need to hold the property until the cycle presents better selling conditions.
Although there is no method of predicting how long each phase will last; identifying the current stage of the cycle allows you to estimate how much of a return you can make from your investment property and advise you on what your exit strategy should be. When you are looking to invest strategically during any stage of the investment cycle with the assistance of an experienced investment specialist, contact Rent It Network for always fast, always responsive and always professional service.