Are you a seasoned real estate investor or someone who is just now joining the exciting world of real estate investing? In either case, you are in the business definitely in order to MAKE MONEY. You must have already heard a thousand times that the best way to make money in real estate investing is to always go for positive cash flow income properties. While it is absolutely true that as a real estate investor, you should never ever be buying an investment property which might bring you negative cash flow (as this means losing money instead of making money), there is also one other very important way of generating wealth with real estate investments: by buying low and selling high. Regardless of how important monthly cash flow is, don’t underestimate the power of real estate appreciation. Buying an investment property for cheap and selling it for a lot could be your key to affluence.
But the big question that remains is: How do you buy low and sell high in real estate investing? Let’s take a look at several strategies for buying an investment property low and selling it high.
1. Follow the real estate market cycle
Every few years, each real estate market goes through a full cycle including the following stages: early downturn, full downturn, bottom, early recovery, early stable, and late stable. Each of these stages has certain characteristic features, and you should learn them well if you want to be a successful real estate investor. Most importantly, early downturn is the point at which the real estate market has reached its peak. Prices have achieved a maximum value and start falling down, while the cap rate and CoC return are going up. Mortgages are becoming harder to get. At the bottom of the real estate market, prices and rents are the lowest, while the cap rate has reached a peak level.
Related: How to use cap rate to decide on the best investment
According to CRE Online, a prominent real estate investing website launched in 1995, the best strategy for buying an investment property low and selling it high is to plan your real estate investments based on the real estate market cycle. This means that you should be buying an investment property at the bottom of the cycle, when prices are low. Then, once you’ve decided it’s time to part with your income property, you should wait till the peak (between the late stable and early downturn periods), when prices are high. It sounds like a smart move, no? This means that your rental property will make significant money for you through appreciation without even taking into consideration the rental income that you will receive between the purchase and the sale times.
An important note: if you decide to go for this strategy, you should keep in mind that different real estate markets within the US reach their peak and trough at different times, so you should keep an eye at the particular market you are interested in. Just because prices in Boston have reached the lowest level in 2 years doesn’t mean that prices in San Francisco are also at their lowest.2
2. Look for buyer’s and seller’s markets
Another important strategy for buying an investment property low and selling it high is to learn to distinguish between a buyer’s and a seller’s market. In brief, a buyer’s market is one where prices are going down, inventories are abundant, listed properties are spending many days on the market, and closing percentages are low. On the contrary, a seller’s market is a market in which property prices are on the rise, inventories are falling down, listed properties are gone within a few days, and closing percentages are high. So, you can take advantage of real estate appreciation by buying an investment property in a buyer’s market and selling your rental property in a seller’s market. Either you could purchase an income property when you find a suitable buyer’s market and wait until it turns into a seller’s one so that you sell your property and buy another one in another buyer’s market. Or if you are already a successful real estate investor with multiple rental properties, you should be looking to expand and/or diversify your investment portfolio based on the state of the market.
3. Consider out-of-state real estate investing
Directly related to the points above, if you are looking for buying an investment property low and selling it high, you should be open to out-of-state real estate investing. Although this strategy definitely has some disadvantages, the benefits it offers could be much more significant. Let’s face it, if you want to grow as a real estate investor, experts recommend to buy a new rental property every 2 to 3 years. To do this, you have to be proactive, you can’t just sit there and wait for the right moment in your local market for respectively buying an investment property low or selling it high. You have to go after opportunities in other states, beyond the 20-mile radius, to find the right properties. Mashvisor will help you in this regard as the available investment property calculator will provide with figures for thousands of available rental properties across the US, from the comfort of your home or office, without the need to travel hundreds or thousands of miles to just see the property and take the numbers.
4. Think about buy-and-hold investment properties
Buy-and-hold is one of the preferred strategies in real estate investing and definitely the one often cited as the best way to get rich in real estate. Buy-and-hold simply refers to buying an investment property to keep in the long run, while renting it out. Since any real estate market is set to eventually go through an appreciation (at least because land is a very limited resource, and populations are growing), buying an investment property to hold on to means that you will buy low and sell high. Moreover, throughout you will be making money via the rental income.
Related: Mini Guide to Buy-and-Hold Investment Properties
5. Weigh up fix-and-flip
At the other end of the real estate investing spectrum is the fix-and-flip strategy, which means buying an investment property in a poor state, doing the biggest possible fixes at the lowest achievable cost, and then selling it to buy another property. In this case, you are certain to buy low (because the income property is in such a bad condition) and to sell high (after the renovations that you have implemented). However, you should be careful not to spend too much on the fixes: the cost of fixing should always be significantly less than the difference in the sale and purchase price.
Related: Considering a Fix and Flip? Ask Yourself These 3 Questions First
6. Keep up with news and developments
Last but not least, here comes a general piece of advice: if you want to succeed in real estate investing, you should always be aware of what is going on in your local market as well as other markets within the US. Follow the news related to real estate and keep up with the developments in the market to know when you can be buying an investment property for cheap and when you can be selling your rental property for more.
Regardless of how much you make as rental income each month, as a real estate investor, you should always look for buying an investment property low and selling it high. That’s one of the best, easiest, and quickest ways to make money in real estate investing. The list of strategies above is set to help you in this endeavor.