Are You Changing Strategy to Meet Current Market?

We often hear people complaining that there aren’t enough deals right now or no good deals or no takers around. Maybe they’re struggling with how to make money in the current market or maybe the strategy used is wrong in this current market and did not work as well as it did in the previous cycle. That led us to the question: How well do they understand your market?

Most real estate markets are localized and geographic, and there can be multiple sub markets. For example, I’m sure you know the luxury housing market is much different than the affordable housing market.

So, what about you? Do you understand your current market well enough to take full advantage of this market cycle?

Work with What the Market Gives You

Your job as an investor is to work with what the market gives you, so be careful of trying to put a round peg in a square hole. Many of us experienced a housing boom during the last boom peak period of 2011s till 2014, before it slowly tapers down for several years. Some areas will normalize more quickly than others. Some states will work through their distressed situations more rapidly than other states, and some niche areas may not have been impacted that much at all.

Responding to ’11 till ‘14, some investors facing this market adopted strategies like buy and flip, borrow to the max to buy, buying multiple units in a single project in this hot market etc.

Those strategies worked well for several years. But don’t base your business only on the said scenarios now! In other words, we all know real estate investing can go sideways when investors try to apply outdated models and strategies that worked in an up market to a down market (and the reverse is also true).

So, when we hear complaints that “there aren’t any takers,” “prices are too high,” or “there’s too much competition,” how much of that is based on being a little too attached to certain strategies that just aren’t working in a down market? As said before, your job as an investor is to work with what the market gives you.

Keeping an Eye on Real Estate Market Trends

Over the years, I’ve realized the importance of keeping your pulse on the real estate market where you’re doing business. The good news is there are many vital signs that can tell us what’s going on in your current real estate market and how it compares to the rest of the country. The six vital signs that show what the current local market is doing:

1. Existing Home Sales
2. Building Permits
3. Mortgage Loan Defaults
4. Foreclosure Sales
5. Interest Rates
6. Infrastructure development plans

The good news with the real estate market is that it changes slowly, much more slowly than the stock market. As things change, you may have time to react and craft a strategy for the coming cycle.

So, our first suggestion is to look at your current investing strategy, determine your real estate market (i.e. buyer’s or seller’s, increase or decrease in market time, whether values are increasing or decreasing, etc.), and look at what the vital signs are telling you about the next six to 12 months  or longer. Then, determine the best strategy.

Do Through Research

Once you have an idea what is going on in your market, it’s much easier to be proactive. You’ve checked the hard economic data. You’ve checked with other experienced real estate agents, appraisers, contractors, and investors to see what they’re seeing. Now, maybe it’s time to come up with a new game plan. If you’re normally a buy-and-hold investor in an up market, maybe it makes more sense to do some fix and rent instead (until prices come back up), especially if the prices in your market keep going down and demand is still low for housing with ample supply and long market time.

Different strategies work in different markets. We tend to hold more performing assets since they’re going up in value due to increasing equity coming back into the marketplace and increasing pay histories, whereas in a down market we can consider selling less well performing assets so we could go back to market to buy more.

What’s Your Next Strategy?

So, what’s your strategy for today’s market?  Are you focusing on looking mostly-distressed short sales, pre-foreclosures, and buying at auctions, buying bulk with hefty discounts from developers’ unsold units? Or maybe you’re focusing on high-end distressed sales. Or maybe you’re even venturing into commercial with lease option etc.