Here is a common concern by real estate investors: “Is it too late to buy in this market?”
I love getting these kinds of questions, as it shows that investors are being purposeful instead of just buying property that produces a return on investment.
Indeed, the markets have been advancing. And, with high volumes of sales and increases in home prices, this question becomes a valid concern. The answer depends, of course, on which market you are considering.
The country is made up of 381 metropolitan statistical areas (MSAs), essentially large cities and their surrounding areas. Each of these markets is different. Knowing when a market is about to transition from a “hold market” to a “sellers’ market” will be essential to know.
And if you already own a property in such a transitioning market, you may want to consider selling and positioning your assets to the next emerging market.
So how do you know if you are in a hold market or a sellers’ market?
6 indicators that show your rental properties are still in a hold market
- Unemployment is low and still shrinking
- Housing inventory is rapidly selling
- Rental prices are still rising
- Days on market (DOM) for home sales are short
- Speculators are buying everything in sight
- Home prices are still rising
This hold market (also considered a “wealth market”) is where people realize great equity growth.
Once the pendulum reaches the top, it begins to swing downward, ushering in a sellers’ market. This is perhaps the most complex shift to notice.
This is the market where people are making lots of money and telling everyone else about their successes. Everyone wants to get in, as the highway to real estate investing is full and looks very appealing.
As many markets in the U.S. are currently in the hold cycle, watching for the changing tide is extremely important for investors. Headlines often can suggest this change is about occur in your markets, so reading between the lines to uncover theses distinctions will protect you from investing in the wrong markets or holding onto properties too long within these markets.
6 indicators that show your rental properties may be in a sellers’ market
- Housing inventory starts to increase
- DOM (days on market) time begins to increase
- Speculators are still buying (but only those who are not monitoring the markets)
- New construction is becoming abundant with a likelihood of overbuilding
- Construction prices are rising
- Businesses and jobs shows signs of slowdowns
Your strategy in these markets is not to buy, and if you already own rental property there, it is time to sell. Do a 1031 tax-deferred exchange to get out of this overheated market and re-invest into the next buyers’ market.
If you are not certain what you should do, remember: real estate is about buying and holding real estate long-term. This does not mean you must hold the same property forever.
If you suspect that you are in a market that is overheated and about to enter a seller’s market, consult with your real estate power team and consider a move on the next emerging market.
Visit Larry’s site on how to consult with your power team and the next emerging market.
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