Market Cycles. Brief Comments.

One of the keys to making money in real estate is understanding the market where your investment property is located.  People (and the Cave Buyers are guilty of this) make the mistake of thinking that the broader market applies equally in all areas.  This is not true, and will end up biting you if you are not aware of this.

In ANY market (buyer’s or seller’s) there are areas, or “pockets” of exception.  In other words, let’s say the world is going down in flames.  If you look closer in any major market, you will find neighborhoods that are resilient, resistant or completely immune to the market.  A great example is Richmond, Virginia in 2008 – 2011.  The housing market was crashing, but Richmond was – overall, very resistant to these market forces.  Why is that?  The answer is “Who Cares?”  The secret to profit is identifying these areas and then joining the trend. 

So what indicators are useful when you are trying to understand a market?  One of the first and best tools is US Census data.  If the Cave Buyers had our way, we’d have a census every 6 months.  The demographics, and most importantly, the population migration from one area to another is absolutely essential information.  Another useful piece of information is the volume of new construction permits in a given location.  Construction permit numbers typically rise and fall about six months before a market responds.  Another tool that the Cave Buyers use is something called the “Comprehensive Plan”.  What is this?  The Comprehensive Plan is published as a (typically) 5-year urban expansion that is required by law to be made available to the public for urban planning.  This is a very valuable document, as it gives you the layout for where new sewer, new water and infrastructure tax dollars are going to be spent in any municipality.  Finally, talk to a realtor that is familiar with the area you want to invest in.  This is the ace up your sleeve.  The hour you spend at lunch talking with them will give you tremendous market insight. 

Good luck to you in your investments!  We’ll post again soon.

• The Cave Buyers.