How to Time Your Entry in the Real Estate Market
When purchasing property as an investor, it’s essential to time your entry in the real estate market properly. Time it right, and you could see great profits. But time it wrong, and you may struggle or even lose money. The top real estate agents Bellevue, WA property investors rely on offer these words of advice for you.
Study the Economy
Your first step is to study the general economy, nationally and for your region. Is the country in a growth period or a recession? Is construction growing or are workers getting laid off?
You can buy in either a boom or a bust market, but your strategy is different for each. For example, in a recession with a lot of foreclosures, you can buy homes at lower-than-normal prices. You won’t make a profit on them if you flip them and try to resell them quickly, though.
Instead, it makes sense to hang onto properties and rent them out until the economy picks up.
Be sure to check out the micro economy too. Which employers in your area are hiring or firing. Where are small businesses opening and closing?
Understand Tax Laws
If you want to maximize deductions and minimize penalties, you need to heed tax laws related to the timing of your real estate purchase. To reap the annual tax benefits of an investment property one year, you have to have purchased it before the end of the previous year.
If you buy a rental property, you will be taxed on rental income, so you need to prepare for that. As tax laws change, you need to stay abreast of new rules. Therefore, it’s best to hire a savvy accountant who can assist you with all of this.
Look at Current Supply and Demand
It makes no sense to buy a house to flip if there is a huge glut of priced-to-sell properties on the market. Likewise, buying an apartment building when there are rental properties all over town sitting empty is an exercise in futility.
You must respond to the real estate supply and demand cycle for your specific location, which varies seasonally and with the economy. If you’re looking at homes for sale in Bellevue, WA, and it’s hard for university students to find apartment housing, a rental property in a college area might be a good bet. If home buyers are struggling to find houses, flipping would be an option too.
Know If It’s a Buyer’s or a Seller’s Market
A buyer’s market is when supply exceeds demand. If there are 100 homes on the market and only 80 people looking, that’s a buyer’s market. When the demand exceeds supply, you are in a seller’s market.
As a real estate investor, it’s important to capitalize on the timing associated with each. In a buyer’s market, you can usually find properties more cheaply, but flipping them for a profit is hard. In a seller’s market, a property you are reselling after a renovation may bring in a higher price than what you'd be able to attract in a buyer's market.
Track Overall Transaction Volume
Real estate transaction volume varies by season, as mentioned above, and also with national and regional economic trends. Your local brokers are usually a good source for information about area market fluctuations. If investment purchases are on the rise, that’s a telltale sign that the market is growing and potentially a good time to enter.
However, high volume can also mean you will be in a competitive market, and there’s no guarantee the growth will continue. The upside to buying in a declining volume state is that prices typically drop.
Factor in Interest Rates
Interest rates in real estate usually follow the economy, but it can be tough to tell which one is influencing which. Sometimes rates reflect the economy, but other times rates are relaxed to drive purchases. Interest rates don’t typically affect home prices, but they do affect transaction volume.
As an investor, your job is to time your market entry to coincide with the rates that suit you best. If you’re purchasing a property to flip, you want low interest rates, which benefit both you and buyers. When interest rates are high, some people may not want to purchase a home and will elect to rent instead.
To complicate matters more, there is the issue of whether to apply for a fixed rate or adjustable rate mortgage. If you think interest rates will rise, you want to lock in a fixed rate mortgage while you have the chance. However, if it looks like rates will go down in a year or two, an adjustable rate mortgage might look more attractive.
Learn About and Vet Industry Predictions
To help you decide when and how to enter the market, keep a finger on the pulse of the industry. Read the financial pages and listen to podcasts about the market to hear what pundits predict for the future. Pay attention to things like the price of construction materials, tariffs, and labor shortages, as well as interest rates and housing prices.
Owning property can be a wonderful source of first or second income, but timing is everything when it comes to investing. Follow these steps, and you’ll have a competitive edge over others in the market and stand a good chance of making the profits you’ve dreamed about.