How to Invest in Real Estate Wisely

If you are considering investing in real estate in this market and want to participate in a 1031 tax exchange anytime in the near future, it pays to learn all you can about investing wisely. Real estate is subject to certain market forces that affect values. To obtain an investment property for development, redevelopment and refinancing of improved properties all comes down to financing.

  The availability of that financing is determined by the current economy, overbuilding, interest rates, unemployment and, of course, supply and demand. All these variables can influence the real estate market.

Historically, real estate cycles typically have an average duration of six to nine years and they cycle through phases including: Recession, Recovery, Expansion and Contraction.

Recession

The Recession Phase follows a market opposition, when the availability of financing is tightened and property values fall greatly. Properties experience vacancies and owners cannot sell because financing has become unavailable to potential buyers. Prices fall far below the cost to construct the same building like new, resulting in many excellent buying posibilities for those with the cash on hand to take advantage of market weakness. Foreclosures increase and property owners become even more motivated to sell as investors sit on the sidelines. As the Recession phase lasts longer, the lower home prices usually go. This is the time to buy.

Recovery

In the Recovery Phase, all the leftovers have been cleared out and prices begin to recover, although most investors are still tentative to buy just yet. New tenants enter the market and property owners refinance as more affordable financing becomes available. Prices begin to move up. This is the time for owners to improve their property, maximize rental rates and wait for the next phase.

Expansion

At this point the real estate market is vastly improving and investors are currently investing in properties with a substantial return. Institutional financing is readily available and the price of updated real estate moves up well over the cost to construct the same property new. Vacancies are at their lowest, prices are at their peak and there is a general feeling of wellbeing, prosperity and abundance. This is the time to sell.

Contraction

It is in the Contraction Phase that reality sets in. The market has become overbuilt and vacancies begin to rise. Financing and equity investment decline from the market as foreclosure rates rise. Prices begin to fall from the peaks of the expansion phase. Investors rush to exit the market, causing prices to fall with rapid speed.

These phases always happen in the same order it just depends on the length of time each cycle has.

When to buy and when to sell

The biggest issue is what phase are we in? It's easy to see what phase you are in while you are in the middle of it, its the beginning and ending that are fuzzy.

To make money, "Buy Low and Sell High" universally applies. The best time to buy is when the cycle is in the Recession Phase, when the best deals become available.  In this phase the best prices and terms can be negotiated, well below the replacement cost to build the property new. The time to sell is during the peak of the Expansion Phase, when buyers can easily obtain financing and the market is on a high note. Another old saw applies here: "Buy when everyone is selling and sell when everyone is buying." This is the easiest determining factor.

The best thing about all this, is it is cycles. Things will always get better and things can always get worse. Finding the right time to invest is all about timing. For more information on 1031 tax exchanges and investing information please contact us today!

ADDITIONAL CONNECTIONS IN INVESTING:   New Paradigm Properties works with all buyers and sellers in the Bellingham real estate area. We specialize in finding buyers the perfect Bellingham homes and service the entire Whatcom county real estate area. High Desert Realtors serving all Idaho Falls real estate with offices in Idaho Falls, Swan Valley and Island Park.  We help buyers and sellers of all Idaho real estate including Idaho Falls homes and surrounding counties. Search and save all Tacoma homes and Puyallup real estate in the entire Pierce County real estate area by Alliance Real Estate. For all Cortez CO real estate and Mancos homes for sale contact Terry McCabe. Contact Jason Barrow Realty for all Richland homes and Kennewick homes. We specialize in finding Pasco homes and selling all Tri Cities homes.