We have always argued that good real estate investment is based on fundamentals and cash flow. No one lost his or her investment by buying based on sound cash flow. Trying to time the market gets some investors into trouble by buying at the wrong time in the cycle, using borrowed money on expected appreciation. So when is a good time to buy?
ALWAYS A GOOD TIME TO BUY…….
PROVIDED….. the property meets what Kieren Trass describes as a SAFE property. SAFE is a pneumonic list of the four acid questions an investor should ask about property performance and condition. Is it:
S – Sensible – Does it produce positive cash flow now versus waiting for appreciation?
A – Affordable for you? If interest rates rise does this mean you cannot afford to hold this property?
F – Is the vendor or owner friendly and keen to sell at an attractive price?
E – Is the property easily rentable or resalable?
YES OR NO
Every real estate buyer asks this question. It can easily be “no” if the market overheated or dead and less than ideal. If the answer is yes, the next questions are why and where? And if not right now, when will it be right again? Where are the bright spots in the form of undervalued or out of favor opportunities?
Hybrid Group offers a real estate variation of “the economic clock.” This first surfaced in England around 1900 to explain stock market economic phases or cycles, from boom to bust and back again. This has been adapted to explain economic ups and downs as a recurring and predictable succession of events that can affect residential real estate market. Understanding where on the clock a particularly market is important especially if you are an investor.
This irregular series of causes and effects creates or reduces wealth in a predictable sequence of boom, slump and recovery.
Adapting the economic clock to real estate, Hybrid looked at four major western economies and hundreds of potentially key economic events, drivers and influencers in U.S, U.K, Australia and New Zealand. These have been reduced to simple formula of twelve or so milestones. These unsurprisingly disregard much received wisdom that drives herd-investment behavior.
MARKET FOCUS FIRST
The key drivers are net population growth, new construction, household creation, household headcount and income levels. Interest rates alone are only a short-term influencer, but over the long term cannot make a bad deal good, or jump-start a justifiably slow real estate market.
Understanding why market influencers are an investor’s best friends can deliver a market advantage. Then understanding where a market is provides an initial advantage.
The next step is research the numbers necessary to do a meaningful analysis for a specific property. We will examine what these are and the steps necessary in a standard real estate investment analysis to confirm the subject property meets your criteria beginning with our next newsletter.
In the meantime if you are looking for expert help in finding attractive properties in middle markets that have a reputation for reliably producing cash flow check with 2020 REI Companies can help you advantage from our experience in viable properties. http://investablerealty.com