So, the big question is, is now a good time to still be in real estate?
As president of the Madison County Real Estate Investors Association, I get this question all the time.
And it is a very vital question: Is the market going to stay strong or is it cooling off? If we had a crystal ball, we would all be in a better place; but we don’t have that crystal ball.
There are things that we have to look for but, I will say this, we are in a great real estate market. This market is producing massive amounts of success for new and seasoned real estate investors.
However, I will say it will not stay here. But, that does not mean that you shouldn’t be in real estate right now, whether you’re fixing and flipping properties or you’re buying and holding as long as you’re buying them at the right price.
After 16 years of being an active full-time real estate investor, I can tell you that the market will turn. It’s just when, but real estate will always be a good investment. You just have to know which strategies to use during which market cycle.
What do I mean by this? Which strategy to use during which market cycle is based on the market cycle at that time. For example, right now we’re in an extremely hot market, meaning buyers are buying and are paying retail; some are even paying more than listed price in some areas.
So, during a hot cycle, when properties are being sold quickly and for more than they list for, the best strategy to deploy is a fix and flip. Therefore, you’re doing what’s called a cash grab during the hot cycle. Whether that’s a $10,000 spread or a $50,000 spread on what we we’re able to sell it for. We are in a perfect market for this right now.
But when markets do turn, and prices do come down, it doesn’t mean you should stop investing. It just means that you should change your strategy. You should move more into long-term buy and holds because the prices are cheaper.
And, in most cases, the rents go up because when a market shifts, it’s usually because of some economic indicators and one of those indicators is foreclosures. When foreclosures happen, you have displaced homeowners, who then need to rent instead of own, which makes a higher demand for a rental property.
So, to the big question: Is now a good time to be in real estate?
Yes. Now is a perfect time to be in real estate. And even if the market turns, it’s still a perfect time to be in real estate. You just have to understand how to change your strategy or get the information or the specialized knowledge to be able to change those strategies. But let’s talk for a minute on what to look out for.
What should we be looking for if the market has gone a term? Well, one of the things that we want to look at is available inventory on the market. Is the inventory still limited? Is it short? Or is there an abundance of inventory?
The national average has always been consistent around four months of inventory. Right now, in our area there is around 1 1/2 to 2 months of inventory. So, we have a shortage of inventory and we have more buyers than there is inventory available which creates the hot market.
The other thing that you want to keep your eyes out on is the listed price that properties are going on the market for versus what they sell for.
When you see a downturn, in that where a property is listing for $100 a square foot but it’s selling for $95 a square foot, then that means it is no longer a seller’s market. In most cases, it is becoming more of a buyer’s market, which means there’s going to be a shift in the market cycle.
A third one that you should keep your eye on is “days on market”. When DOM is consistently at 30 days the market and, all of a sudden you’re seeing 60 and 90 days on market, that is another sign of a shift that is happening.
So, those are a few things that you can keep your eyes on to protect yourself as you become active in the real estate market.
But I want to leave you with this: Don’t be scared if the market turns; just be prepared if the market turns, then move into cashflow, move into buying rental units, income-producing properties.
At a cheaper price, you could buy now for the long-term hold. You will get a better cash on cash return on those deals. But it is always my outlook that you should learn how to do all of this, whether it’s fixing and flipping or buy and holds.
We provide a lot of great information at the Madison County REIA, and you can always go to our website and learn more about market conditions. We have a real estate talk show that is recorded for the website. We also have monthly meetings that you can come out to and be part of. And so I encourage you, check out www.MadisonCountyREIA.com.
(Zack Childress has been a real estate investor for more than 15 years and is president of the Madison County Real Estate Investors Association)