Wealth Tactic 18

by Ed Barriskilll (Co-Founder, 37th Parallel Properties)

Do you know when it is the right time to purchase or sell a property? Understand the four stages of a Market Cycle, and watch your wealth accelerate!

If you knew the right time to purchase or sell a property, how would this information change your financial future?  Even though Kathy and I are doing quite well at this investing game, if we knew the strategies listed below 20 years ago, our financial position would look much different than it does today. If you know and understand the Four Stages of a Market Cycle, you will know exactly when to purchase real estate and when to sell real estate and thereby accelerate your wealth tremendously.  The four stages of the Market Cycle are:

1. Buyers Market Stage 1
2. Buyers Market Stage 2
3. Sellers Market Stage 1
4. Sellers Market Stage 2

Each one of these stages play an important role in every Market Cycle, and every Market Cycle goes through these four stages, no matter what.  Depending on certain economic factors, the timing from start to finish will be different for each Market Cycle. Now that I know and understand these four stages, I know when to purchase properties and when to sell them.

Let me give you some examples of how these stages have affected our investments. We owned three rental properties here in Brentwood, Northern California, (not to be confused with the “O.J. Brentwood” in Southern California), and sold two of them when the market was good. Using a 1031 Starker Exchange, we used our gains to purchase commercial properties in Texas. From those two properties we are making good monthly cash flow and growing our equity.

The third property I wished I had sold, but I didn’t for a number of reasons.  Two and a half years later, because of this “bad” market, this rental property is now worth $320,000 less in value and we are paying $160.00 negative cash flow each month or about $2,000 a year. Bottom line, if I kept true to my “Money Rules” and leveraged my awareness of the four stage Market Cycle, I would have sold that one property and exchanged it up to a Multi Family Apartment Building. Kathy and I would have been making about $3,200 more in monthly cash flow and our equity would have probably tripled by now.

Since I have lived through three “Bad” Market Cycles over the last 34 years, I believe history will repeat itself – the market will return, but it may take seven to ten years to do so. That is why it is so important for you to know and understand the four stages of a Market Cycle so you can take control of your own financial future instead of letting the market control you. Let’s look at them in more detail.

1)  Buyers Market Stage 1: At this stage of the Market Cycle you have an over-supply of properties in the market. Housing prices are falling, and yet demand is low. Unemployment is high and real estate loans are hard to find as lenders qualifications are stricter. Most new construction of new homes has come to a halt. Yet, as prices fall investors are purchasing properties at low prices.

2)  Buyers Market Stage 2: When this stage occurs in the Market Cycle the government will give incentives to business owners to create jobs for the populace. The government will also create alternative financing to encourage individuals to start purchasing homes again. While demand slowly increases the over-supply of homes starts to decrease, job growth will slowly increase and the economy will start to get stronger. At this time demand starts to increase hence prices start to increase and the economy is on its way to recovery. Investors are continuing to buy properties, but are aware that they need to be patient and stick to their Money Rules when making purchases.

3)  Sellers Market Stage 1:  At this stage of the Market Cycle demand for housing is rising and prices are also increasing. Supply is typically low at this stage due to the demand for housing and the built up desire that people think they can make a lot of money with prices going up. This is where you see multiple offers on existing housing as well as people starting to wait in line at new housing developments to purchase new homes. Housing prices are starting to increase more rapidly. Unemployment is low and the general economy is doing very well.

4)  Sellers Market Stage 2: At this stage of the Market Cycle job growth is strong and very stable. Due to strong demand, new construction and existing houses can’t keep up with supply. People are literally waiting in lines to purchase new homes, and you see existing houses sell in one or two days with prices increasing every week, sometimes daily. At new housing developments you will see each phase (group of homes released to new buyers) much higher in price than the phase before. At this stage there is a lot of “so called investors” purchasing properties and then immediately flipping them to make a profit.

Because of space and time I have only been able to highlight each Market Cycle and signs to look for. There are a lot more details and nuance to the Market Cycle process than we’ve noted here. And remember: At any time, various markets around the country are at different stages in the Market Cycle. Just because your local market is not in a stage that is conducive to your investing needs, that doesn’t mean there is not an alternate market that will fit your needs.

In conclusion, most successful investors know these four stages of a Market Cycle and leverage each cycle to the fullest to accelerate their wealth. Every market goes through this four stage Market Cycle and depending on the economy each cycle will last between 10 to 15 years. By keeping these concepts fresh in your mind, when you see these events/signs happening in the market you can make intelligent decisions on when to purchase and when to sell. If you want to learn more about the four (4) stages of any Market Cycle we will have more information available for you in the next few months.

At 37th Parallel Properties this “financial intelligence” is a great way to accelerate your wealth!