The difference between an Investor who makes millions and can retire early and one who struggles and fails often comes down to understanding and responding appropriately to housing market cycles.
Traditionally, the housing market operates on 8 to 12 year cycles with at least four distinct stages. Some markets are more stable than others and do not see huge variances in housing price, while other markets tend to go up and down in boom and bust cycles. Different investing strategies are needed to profit the most in hot markets and profit in down cycles.
Think of a bell-shaped curve. Half way up the left side of the hump is a Seller’s Market Phase 1. Demand has risen to its highest point. A lot of building is going on and the market is beginning to reach saturation. Prices are starting to go up quickly. This is a period when both buy and hold and flipping strategies work. Sales timeframes are fast—typically 20 to 45 days at retail prices.
Approaching the top of the bell curve is the Seller’s Market Phase 2. This is a risky phase for both buyers and sellers because it is hard to tell when the market will reach its top and begin to slide again. The length of time it takes to sell property increases to 180 to 360 days typically. To sell quickly requires wholesaling property. This is a good time for flipping property. Investors should not hold property long term in markets that show much volatility unless they can get a deep, deep discount.
A Buyer’s Market Phase 1 is on the downside of the curve just opposite the Sellers Market II mark. Prices and rentals are falling. Demand is at its lowest point. This is the time for buy and hold buyers to begin to pull out the funds, but strictly for cash flowing properties. Don’t expect much appreciation for several years.
Near the bottom of the right leg of the curve is the Buyer’s Market Phase 2. This is the best time to buy property for long term appreciation as well as for cash flow.
As the cycle repeats itself, investors need to gauge the best times to divest of property in one market in favor of a short term flip strategy, or in favor of emerging markets that are a little ahead of or behind the cycle.
While there will always be wholesale and Short Sale opportunities in every portion of the market cycle, in order to maximize profits, in order to truly build wealth, each Investor must plan on using a number of strategies, depending on the market and the market cycle, alternating buy and hold and flipping strategies accordingly.