The real estate property market, like any other market, is determined by demand and supply. Such market dynamics dictate whether it is currently a buyer’s or seller’s market. Real estate economics try to explain pricing patterns, mainly driven by supply and demand leading to changes in property prices. As a real estate investor, you probably want to know whether investing in properties in a buyer’s or seller’s market is better for you. Keep on reading this article to find all the answers.
Understanding the Cycles of Real Estate Economics
Real estate markets are dynamic and can fluctuate between peaks and troughs called real estate cycles. Any successful real estate investor should be aware of real estate cyclical changes and how to spot them. By doing so, you can easily determine whether it is a buyer’s or seller’s market, and thus, you can decide when is the best time to buy a house or when is the best time to sell an investment property.
What is a buyer’s market?
A buyer’s market is an economic situation where property owners are unable to get an offer for their properties quickly. In a buyer’s market, supply is higher than demand, which means that there is more housing inventory than actual property buyers. Properties for sale on the market during that cycle often stay on the market for longer periods, and their owners should be more flexible in terms of price and conditions.
For property investors, this is the ideal time to make a move, as you might be able to buy an investment property for a lower cost than you would if the same property was in a seller’s market. On the other hand, when it comes to a buyer’s or seller’s market, the former is not the best time to sell an investment property. You may have to lower your listing price to be able to sell it.
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What is a seller’s market?
A seller’s market is a perfect example of inflation, where too much money is available but there aren’t too many goods to buy. In this case, the goods are real estate investment properties. This situation occurs when demand is higher than supply or when there are more property buyers than available real estate properties for sale on the market. Having multiple real estate investors interested in a single property creates competition and eventually leads to bidding wars, driving real estate prices high up.
When it comes to selling a property in a buyer’s or seller’s market, the latter is the ideal situation. In a seller’s market, you can easily sell your real estate property for higher than your listing price and most importantly, within a short period of time.
Why Should I Buy an Investment Property in a Buyer’s Market?
Now that you know how to spot a buyer’s or seller’s market, let’s talk about buying an investment property in either market. Investing in a rental property in a buyer’s market makes more sense for the several reasons that are summarized below.
1- Less Competition
In a seller’s market, you will face high competition against other real estate investors and even homebuyers. Buying an investment property in a buyer’s market leaves you with less competition from other property buyers and investors. For the same reason, beginner real estate investors find it easier to close a deal in a buyer’s market.
2- Flexibility
A buyer’s market situation forces property sellers to be more flexible in their price and terms. As a real estate investor, you find yourself with a higher negotiating power which translates to a lower price than the property is listed for.
3- More Financing Options
Seller financing is a common financing strategy in a buyer’s market. Alternatively known as owner financing, it is simply when the property owner gives the buyer a mortgage, making it much easier to sell the house. In a buyer’s market where it is difficult to sell a property, seller financing offers advantages to both property sellers and buyers alike.
Can I Buy an Investment Property in a Seller’s Market?
Investing in real estate can be done in a buyer’s or seller’s market. The fact that investing in a buyer’s market is easier does not necessarily make it more profitable. Therefore, we can conclude that you can buy an investment property in a buyer’s or seller’s market if you know how to locate a profitable income property to invest in.
So, whether you are investing in a buyer’s or seller’s market, it is important to learn how to evaluate real estate investment property. First, you should be able to find a property that is affordable and promises a good return on investment. Using Mashvisor’s Property Finder Tool makes the process of locating an investment property simple and more successful.
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Next, you’d have to use an investment property calculator to find the perfect investment property. Every real estate investor should use an investment property calculator no matter what the economic conditions of the market are. Also known as the rental property calculator, this tool provides you with crucial real estate metrics such as cap rate, cash on cash return and occupancy rate. Furthermore, the tool can tell you which rental strategy (traditional vs Airbnb) to follow in order to maximize your profits.
It doesn’t matter if you are investing in a buyer’s or seller’s market, as long as you can afford a property that stands out as the perfect real estate investment opportunity.