In which phase of the housing

IN WHICH PHASE OF THE HOUSING MARKET CYCLE SHOULD YOU INVEST IN A RENTAL PROPERTY IN LA?

Briana Frazier

Everything in life is in cycles. We move from one stage of the cycle to another stage of the cycle. It is likewise investing in real estate. The real estate market is quite a dynamic one; it operates cyclically from one stage to another till it goes round to its initial stage.

Investing in real estate can thus be very dicey as the market cycles in real estate differ significantly from one another.

Everything in life is in cycles. We move from one stage of the cycle to another stage of the cycle. It is likewise investing in real estate. The real estate market is quite a dynamic one; it operates cyclically from one stage to another till it goes round to its initial stage.

Investing in real estate can thus be very dicey as the market cycles in real estate differ significantly from one another.

EXPLAINING THE HOUSING MARKET CYCLE The housing market cycle can be measured by the changes in the residential property prices and the number of transactions on residential investments undertaken over a period, which are often expressed as a reflection of the overall general market cycle.

Simply put, housing markets tend to move in cycles due to the desire to make economic gains, i.e., new construction is completed to meet the rising demand for real estates.

Typically, real estate operates in four phases. They are briefly explained below:

EXPANSION This phase of the housing cycle is known as the seller’s market. Investors tend to make the

most profit because occupancy rates will be at an all-time high, and vacancies would be filled more quickly than usual.

Also, during this period, rents tend to be high and often increases because of the high demand for properties and the fact that new real estate developments would spring up almost everywhere to meet the increased demand for homes.

For a real estate investor, the expansion phase would be the right time to buy and flip properties. Distressed properties can be purchased, rehabilitated, and resold or even rented out with the assurance that the property won’t be vacant for long. The high rent would enable you to cover your expenses quicker.

HYPER SUPPLY Everything comes to an end, right? The bubble would eventually pop, and the supply of properties would be more than the demand, i.e., housing supply would significantly increase when there is no demand to match the supply.

During this phase, since there are more housing units than buyers and tenants, there would be high competition for tenants, which would result in rent either stalling or declining.

Investing in this period would not generate the quick profits gained during the expansion phase as your property may fail to attract new tenants for several months.

RECESSION Inevitably, the housing market that is already on a decline will crash. During this period, real estate properties could be for sale at prices lesser than their market value.

Investors who buy properties during this phase do so at a very low price because prices are down. Typically, it is during this phase that “the buy low and sells high” mantra tends to ring true.

RECOVERY The recovery stage of the housing cycle sees the housing market make a slow and steady rise again.

In this period, the price of properties would still be low, but the next phase of the cycle, expansion, would make you sell at a profit, and unlike during a recession, you don’t have to wait so long.

If you seek to make an immediate profit on your rental property, the cycle to invest in would be during the expansion.

In which housing cycle can I invest in rental property in LA?

However, if you seek to buy low and sell high, it would be advisable to buy during a recession.

But if you want to make the best profits, the recovery phase would be the best period for you to invest in real estate. This is because you will reap the benefits of a low market price and be able also to reap the rewards of an economy that is about to experience high rental rates.

Reference:

https://www.mashvisor.com/blog/us-housing-bubblecrash/ https://www.bankrate.com/glossary/s/sellers-market/ http://berkshirehathawayhs.tomieraines.com/Blog/ID/368/ How-Long-Does-a-Sellers-Market-Last-Analyzing-RealEstate-Cycles