Multifamily real estate investors can create massive wealth over a period of years by following market cycles. Market cycles are largely influenced by jobs. When a large company grows and hires new workers, the demand for housing in the area increases and property values and rents rise. Conversely, when a large company lays off workers, demand for housing decreases, prices in the area drop, and vacancies rise. By keeping an eye on the job market, you can jump on opportunities that come up which allow you to take advantage of housing demands for the newly employed or unemployed. Even workers who are laid off may need to downgrade to more affordable housing.
Keeping tabs on market cycles can be a simple way for real estate investors to make great gains. By keeping an eye on business news and following Fortune 500 companies, investors can find out which housing markets are best to invest in, where the good deals are, and where higher rents can be supported by high demand.
Other factors besides job growth affect market cycles as well. A current factor in market cycles is the sub-prime lending bust. Although the sub-prime mortgage difficulties have negatively affected property values for single-family homes and condos, owners of apartment complexes are seeing increased demand for their units as foreclosures mount and homeowners must find new places to live.
Wise real estate investors see market cycles as opportunities to leverage their current assets into new ventures. For example, let us say an investor owns a multifamily property in a city where a Fortune 500 company opens a new office. The new office brings one thousand jobs to the area, and soon there is a housing shortage.
By increasing rents and cutting expenses, the investor is able to increase the value of the property by half a million dollars. The appreciation of the land and property increases the value by another half million dollars. The investor takes that million dollars out of the property and puts it into a new property worth $5 million. In this way, he has leveraged his property during a fortuitous point in the market cycle into a larger property.
Following market cycles, an investor can continue leveraging over and over again, acquiring bigger and bigger properties. Even if the investor only makes 20-40 percent on each deal, over time, the increased property values amass significant wealth. In this way, following market cycles can cut down on risk and increase profits. The bottom line, keep your finger on the pulse of the markets; they can be a great indicator of when to buy and sell properties.
Lance Edwards is living proof of his mantra that you don’t have to “graduate” from single family to multifamily – you can start with multifamily; using none of your own money and not dealing with tenants and toilets. For FREE information, visit Apartment Wealth Machine