Investing in the Market Cycle - Know What to Do When

If you know where you are in the market cycle, then you know what to do to make money in the marketplace. Here is our chart for discussion:


Phase 1 - Seller's Market

This is the no-brainer phase. This was 2006 and most of 2007 for the Utah market. Prices were running up over 1% per month. If you owned real estate you were making money on it. This is where Lemming Investors arrive in droves due to the ease of it all. Notice that there wasn't much of a difference between retail and wholesale pricing. Banks knew if they waited another month their homes would be worth more, so they just listed it at full price and surprisingly, most people paid them that. This was a difficult time to find a bargain. However, there were some out there. In any case, most of the folks who bought during this Phase still made significant appreciation on their homes regardless of whether it was retail or wholesale pricing.

Phase 2 - Transitional Market

This was the end of 2007 to the first half of 2008. In this phase the banks haven't quite figured out that prices are flattening out. It takes them a couple quarters of data to find out what is going on. Therefore, they still price the their distressed homes high. In this awkward stage, prices are sticky for distressed homes lending some confusion to the marketplace. Inventories rise as homes do not sell due to overpricing. We are at the tail end of this phase now. This is a time to be getting your financial house in order.

Phase 3 - Buyer's Market

This is my favorite phase in the marketplace. This is a buyer's market. The best part is that the banks know this as well. Short sales and REO (bank owned) property are very profitable for investors during this phase. This is where you buy homes at 80% of full market price with minor fixup required. You can buy homes at 50% of market price that need lots of fixup. This is the phase that you start binge buying. You can cashflow easily and make equity to cash in when you sell during the next Phase 1. Investors who buy during this phase make a killing when they sell during the next run up in the market. This phase would be analogous to 2002-2004....and soon to be 2009-2011.