Anticipate the Market

In many past articles I have stressed the importance of knowing the current real estate market. You should take note when property prices are rising, falling or plateauing. If you are a flipper, is your inventory selling faster or sitting on the market longer? If you are a wholesaler, are you having to work harder to find deals or have you suddenly found an abundance of deals? Are the deals you are finding getting easier or harder to sell? If you are a real estate agent or work closely with one, is his/her listing receiving multiple offers and flying off the board? Or are they sitting on the MLS with a few showings here and there? These are questions you should always be asking as a real estate investor.

One can always pick up an article or see a news report about what is going on in real estate but it is usually a report of real estate as a nation not just your market place. Most realtor associations have monthly reports that are helpful but they are not out until the middle of the following month. As an investor, even these reports may be too late in providing the information. If you are in real estate or plan on being in real estate you must keep your finger on the pulse. If you are doing plenty of business you will feel the change in the market and can begin to prepare for it immediately. However, if you only dabble in real estate, you might not know what is coming around the bend. If you dabble or are just getting started make sure to network with people that are full-timers. If you find a deal you plan on flipping or holding on to for a rental, discuss it with a veteran investor. They can mentor you on the best option and possibly keep you from making a mistake.

In the last year or two real estate investing has been great. Deals were a bit more difficult to find but when you found one it was profitable. I know some investors that bought outside their comfort level, in regards to loan-to-value, and were very profitable because of a strong seller’s market. Unfortunately, many investors continued to buy this way and thought the party was going to last. However, in the last month or so many markets have softened. The multiple offers have stopped, unless the house is gorgeous and the price is just below market. One of my investors has five homes on the market that has had very few showings and zero offers even though the homes are amazingly done. The issue is he bought these properties assuming the market would remain strong and/or continue to appreciate, which has not been the case. I asked the questions above and he only acquired one property in the fourth quarter. I am still open to acquiring more homes but not at today’s inflated after repair values.

Take a serious look at your market, ask yourself the questions mentioned above, and try to anticipate the direction your market is heading. Never stop asking these questions or networking and you just might be able to predict the direction your market is heading. This can allow you to prepare and be profitable. If you notice the market softening start investing in homes based on the after-repair-values that are just below the current market values. If you can, look at the sales history in the neighborhood and use the after-repair-values of the neighborhood just before the large spike in values. If the market is gaining momentum and values are moving up, use the current market values or the ones from the previous month. These two tips have kept me safe for nearly a decade and it can keep you profitable as well.