How to Buy Real Estate at the Right Place And at the Right Time
"The most important thing is location, location, location." Or as John Paul Getty said "Buy when everyone is selling and sell when everyone is buying." This is calstatecompanies Standard Operational Procedure (SOP).
Remember, there are always pockets of opportunity for real estate investments. Good markets exist all over the world at varying times. Concentrate on weak markets, not weak properties. Buying in a depressed market is called "bottom fishing."
The Key to Evaluating Locations
Focus on areas where the local economy is basically strong and the current downturn is caused primarily by overbuilding. The U.S. Bureau of the Census publishes building permit activity for buildings five units and up for Metropolitan Statistical Areas (MSAs). Identify markets with the largest gains in building permits from one year to another.
Real estate investing often makes money for the second owners in overbuilt markets, not the first. Builders get paid for building and they will keep on building as long as they get paid. More often than not, banks are the ones doing the paying.
The market becomes deluged with an excess of inventory. This is when you should step in.
Base employment is probably the single most important factor contributing to the economic health of an area. In evaluating employment trends, be careful of construction employment. During boom-and-bust building activity, the labor base can become distorted by construction related jobs.
Talk with the local city planner to determine the direction of city growth. Plans for shopping malls, universities, and business parks create a potential demand for employment and desirable apartment locations.
Demographic Factors Affecting Apartments
Demographic factors are also important in evaluating demand. People tend to marry later and divorce is on the increase, both of which result in a larger single population. In addition, people are living longer. The number of households is increasing, and the size is decreasing.
Demographically, look for an area in which there are a higher percentage of females to males, younger and/or older adults as opposed to middle aged, singles rather than married, smaller families over larger families and renters over non-renters in evaluating favorable rental areas.
The "when" to buy and sell is just as important as the "where." With bad timing you'll strike out every time. To improve your timing, you must become familiar with apartment cycles. Calstatecompanies issues a quarterly report "Market Cycles" that will improve your timing.
Cycles results from the influence supply and demand have on the marketplace. Economists spend countless hours trying to accurately predict them, and gurus for the current year are the ones who guessed correctly the previous year.