There are two basic approaches to successfully timing real estate purchases. You can be a momentum buyer or a contrarian buyer. There are pros and cons to each. Provided you are thoughtful about your overall exit strategy, you should be able to make money either way with proper timing. If you're thinking like a trader and have considered how long you plan to own the property, then you should consider what the market will be like when you plan to sell. Will it be a better time then than it is now? And is now the best time to be a buyer?
Momentum and contrarian buyers buy at different times in the real estate cycles.
Contrarian buyers buy at low points and as close to the bottom as possible, when everyone else is selling. Like me, they buy when there is blood in the streets. The problem with this strategy is that you never really know until after the fact how close you actually made it to the bottom. If you think it's the bottom but the worst is still yet to come, you can get hurt financially unless you have significant staying power. Contrarian buying has the potential to be extremely treacherous.
Momentum buyers, on the other hand, buy once the bottom has been identified and a cycle has started to move up. The problem with this strategy is that you aren't the only one who knows prices are going up. You have to face competition to buy and, under these circumstances, it's difficult not to overpay. You must also be ready to sell relatively quickly, so you don't get caught by a market downturn. To complicate matters further, whether buying or selling, real estate transactions take a long time to complete. Momentum buyers must be careful to time their purchases for the earliest stages of an up cycle.
Whether you are a momentum or a contrarian buyer, you likely won't make money on the cash flow of your investment ... The time to make money is when you sell.
Being prepared, being aware of market cycles, and thinking like a trader before you buy any property - even if you plan to hold onto it for a number of years - is the path to real estate success.
