How To Survive A Booming Market
By Paul Esajian on May 27, 2016
After years of stagnant growth, real estate is once again booming in many markets. While we may never reach the heights of last decade there is certainly room for appreciation. The best investors understand how to take advantage of whichever way the market is moving. They buy low when the market is down and sell high when they see it rising. As the market trends upwards there are a few things you can do to help put you in the best position. What you do today often will impact your business several years down the road. Here are five things you can do to help deal with a booming market.
- Trust Your Numbers. There are more people investing in real estate than ever before. This increase has created excessive demand and helped drive home prices upwards. As prices shift higher it is more important than ever to trust your numbers. The goal of your business is not to accumulate properties but to make a profit on them. By chasing the market you will end up taking on deals that don’t make a whole lot of sense. You need to spend longer than you think on due diligence on every prospective deal. You will make more offers than ever with less getting accepted but you can’t cheat the process. All it takes is one bad property to put you behind the eight ball. Look at the numbers and make your offer accordingly. By adjusting your purchase price your margin for error is will be razor thin. In tight markets you need to always trust your numbers.
- Patience. Trusting your numbers only works if you have the patience to act on it. With increased competition there are more investors targeting the properties you really want. Eventually this can lead to a bidding war. Before you know it you end up drastically overpaying for a property just because you have had your eye on it for some time. Now more than ever you need to show a little patience. There will always be deals to work on. You may have to change the way you find them but they are out there. You need to have the patience to wait until you find a property and a deal that makes sense for you. It is ok to slightly expand your comfort zone but you can’t chase every new listing that becomes available. Let the other investors in your market chase the same handful of listings. If you aren’t totally comfortable with the deal pass and wait for the next one.
- Examine The Possibility Of Selling. If you have an existing portfolio now may be a good time to consider selling. One of the difficult things about real estate is that you never know when the high water mark will be. It is human nature to try to time the market at the exact perfect time. Doing this is almost impossible. If your market is one the rise see what area homes are selling for. Take a look at what they offer and how it compares to your property. If you are comfortable with that number there is no reason to try to squeeze more out of the property. This is especially the case with any rental properties you own. Perhaps you were just renting because you couldn’t get your price a few years back. You managed to squeeze out a small monthly profit but not enough to justify the risk. Getting out now with the market on the rise could be the perfect time to sell.
- Refinancing Options. With property values on the rise another option you have is refinancing. All refinances are based on the loan to value ratio. This is simply the total loan amount divided by the appraised value. With investment properties this number needs to be around 75-80%. In the past refinancing either wasn’t a viable option or didn’t make a lot of sense given the equity situation. As values rise this could be an opportunity to either pull some cash out or lower your monthly payment. Even with higher rates that investment properties have interest rates are still near all-time lows. Reach out to your local lender or mortgage broker and explore your refinancing options. You may be able to increase your cash flow by a significant amount.
- Avoid Trends. The real estate business works in cycles. There is very much a follow the leader mentality. While there is nothing wrong with gravitating towards what works understand that this is where the competition is. As you are looking to stand out from the crowd it is important to avoid current trends. By the nature of trends they are hot one minute and cold the next. If you put all your capital into a current trend and it doesn’t work you could be left without any options. It is ok to dip your toe in the trend waters but never dive in. When markets are on the rise you want to be able to try as many different lead generation options as you can.
Dealing with a booming market is a good problem to have. This demand will help reap rewards on your current portfolio or on deals you are getting into now. Follow these five tips to help you get the most out of a rising market.