U.S. real estate: When to get in and when to get out

When investing in U.S. real estate, knowing when to get in and when to get out of a market is crucial to success. We make a lot of different investments in U.S. real estate and we always look at emerging and “sexy” markets. When you can find a market that is both emerging and “sexy,” that’s when the best opportunities happen.

But before we talk about buying, let’s make the distinction between these markets. An emerging market is a region or state that previously experienced a downturn in the economy, but is starting to see signs of economic growth.

Four key indicators of an emerging market in U.S. real estate

  1. Emerging MarketsPopulation is over half a million. This doesn’t just mean the city itself, but the surrounding metropolitan area as well.
  2. Inventory of properties that are priced under $100 000.
  3. Fortune 500 companies in the city.
  4. Job growth. This will create population growth and increase housing demand.

“Sexy” markets are those enviable locations with hot climates and thriving metropolitan areas that everyone would like to live in. When you can get a market that is both sexy and emerging, that’s when you get the best investment. Florida and Phoenix fit both categories. Florida was hit hard by the housing crisis in 2008, but it was destined to turn around with innumerable beaches and beautiful locations available. Phoenix was also hit hard by the crisis, but it never reached the demand that Florida was known for. Now there are plenty of high tech and communications companies pouring into Phoenix, causing a surge in jobs and an uptick in the rest of the Phoenix economy.

Buyer and seller U.S. real estate markets

Supply and demand controls the U.S. real estate market, so we like to see markets as either a seller or buyer market. Seller markets mean inventory of houses is low and buyers are willing to pay more. Buyer markets mean that there is too much supply and sellers have to mark the home price down to make a sale. When days-on-market starts to increase, that means its a buyer market and you should probably find an exit strategy.

Most important to remember is that the real estate market is cyclical, so peaks and valleys will occur everywhere. A typical U.S. real estate cycle is approximately 20 years from peak to peak, so have patience when waiting to flip a property. When you decide to leave a market or need a new monetization strategy, you need to select the proper exit strategy.

U.S. real estate exit strategies

  1. Flip: This means buying a property, doing some renovations and putting it back on the market. It can result in a more immediate return on investment, but can defy the point of investing in U.S. real estate, which is to get passive income.
  2. Hold: This means renting out the property. It provides passive income, but you can be at the mercy of the rental market.
  3. Refinancing: We love this option because there are so many options available, and you could refinance more than once.

Other options include making it a joint venture with another investor or turning your renters into owners. To get more details on options available to you, sign up for our free mailing list.

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