You’ve no doubt heard the adage ‘buy low and sell high’ and while this is a great practice in the real estate market, it’s not as simple as it sounds (or realistically achievable). Timing the real estate market is a skill that even seasoned pros struggle to nail down. While there are a few things you can pay attention to that might help you make some educated decisions, real estate does come down to being more of a long-term game plan than something that will turn a profit overnight.
It’s hard to profit from timing the market
As you know, real estate investing is about getting the highest return as quickly as possible. In a perfect world you want to buy low and sell high. But in real estate, the market doesn’t move that quickly so you might be sitting on a property for months or even years before the market swings and you can sell. In these situations, the costs associated with holding a property can seriously eat into your profit margins.
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Tips to time the real estate market
Know Your Market
Knowing and understanding which market you are working in will help you determine whether your investment might be a good one, or whether you should hold off.
There are 3 different types of markets in real estate:
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- Buyer’s markets – This happens when there are more houses for sale than there are people to buy them. Since buyers have several homes to choose from not all of them will sell, meaning that your investment property might be on the market for longer, increasing your monthly costs. The guideline to watch for is 6 months. If there is 6 months of inventory on the market, the market is leaning into a buyer’s market and purchase prices will likely be lower.
- Seller’s Markets – On the flip side, if there are more buyers than homes available, you are looking at a seller’s market. Since there are fewer homes, likely all of the ones on the market will sell, and for higher prices. In this market you wouldn’t want to buy real estate but it could be a good time to sell it.
- Neutral Markets – It stands to reason then, that neutral markets are balanced pretty evenly. Interest rates will be affordable, inventory is good and there are no volatile swings in the market. While there can be good buys during this time, they are harder to find and lock down.
In a perfect scenario you’ll want to buy in a buyer’s market and sell in a seller’s market, but this can be hard to time because of the needs of the investor.
Real estate can be seasonal
Typically, as the weather warms each year, more people are looking to buy homes for their families. With kids out of school and the weather feeling nicer for packing and moving, the market tends to shift into a seller’s market.
On the opposite end of that, from October to March the market trends more towards a buyer’s market since people tend to get busy over the holidays and don’t want to move in the colder months.
Pay attention to trends
Looking back at trends in your area over the past 10-15 years will likely give you some hints to how the market might swing in the coming years. Finding a pattern can help give an idea of when to expect an up or down swing in the current market.
Focus on big cities
In bigger cities like Toronto sometimes the seasonal market swings are less pronounced since the market is always hot. With supply being unable to keep up with demand, the market often swings more to a seller’s market.
A better strategy than timing the markets
Rather than spending a ton of timing trying to time the market, it is better to understand that real estate is almost always a long-term investment. The biggest returns come with a plan that includes both capital appreciation in the initial investment, and regular cash flow from the creation of rental income.
Learning how to read the market to help make the most out of any real estate investment is a good plan, but relying on timing the market can keep you from the long term returns that most wealthy investors look for.
