How Market Timing Affects the Success or Failure of a California Real Estate Investment
Real estate markets are generally cyclical—they go up and they go down over time. If you are near the bottom of a downward-trending buyers’ market, when real estate prices are heading into the abyss, you may be able to get a much better deal than during an upward-trending sellers’ market, when real estate prices are shooting to the moon.
When a real estate investor enters and exits a real estate market, it is critical to overall investment returns. A real estate investor cannot change market timing, however it is possible to spend a considerable amount of time and resources measuring it to determine the best time to maximize profits over the long-term or within each real estate bubble.
Many years ago, real estate markets were somewhat slow and steady giving real estate investors plenty of time to gauge their directions and make prudent investment decisions based on long-term market trends. Today, real estate market have been upended by short-term real estate bubbles caused by mortgage-backed and rent-backed securities originating from Wall Street, as well as capital flight out of the stock markets and into tangible assets. For this reason, it is critical for a real estate investor to move quickly, read each artificially-fabricated short-term bubble, and invest accordingly.
Buying a poorly-maintained distressed house in a lower socio-economic neighborhood directly violates the rule of location. However, that is exactly what a large number of real estate investors have done in response to the Federal Reserve Bank's (FED) quantitative easing programs. Real estate investors feared inflationary pressures caused by the increase in the FED's balance sheet from $800 billion a few short years ago to $4 trillion today.
Real estate rules tend to be effective during long, slow upward-trending sellers’ markets where economic growth is the backbone of real estate price appreciation. However, when central banks (i.e., FED) introduce new and untested stimulus techniques into the market trying to jump start a sluggish economy, the rules tend to go out the window.
If appreciation in value seems to be many years down the road, cash flow may be the main objective for investors to invest in real estate—along with wealth preservation strategies. Rental houses located in lower socio-economic neighborhoods may have the potential for huge cash flows—if purchased near the bottom of a downward-trending buyers’ market. Although, some investors may decide to keep their money in the