How to time the real estate cycle?

Question

I know the short answer is that you should never bank on market timing, and should generally be carefully when looking for appreciation. But I am more interested long term buy-and-hold properties. I feel like my local market (Edmonton, Alberta, Canada), is currently still on the up trend, and I was wondering if I should continue to invest in properties now, or wait for a market correction? What signs would determine what part of the cycle your local market is at? What are signs of a coming correction?

Ash Badry · Answer

Hi Alex, I'm also a buy & hold investor in Edmonton and I agree with Eric, as long as a property cash flows it doesn't matter what the market is doing, the property will always be able to carry itself. Ideally you would like to be able to purchase a property when the market is in a slump and ride the appreciation train all the way through the boom, but we all know that timing the market, if possible, is a difficult thing to do. I recently just finished a great book called Secrets of the Canadian Real Estate Cycle by Campbell, Trass & Head. It describes in detail the fundamental drivers of the real estate cycle in any market, how they change with different stages of the cycle, and how you as a strategic real estate investor should track them in your market(s) so that you can make strategic investment decisions based on what is happening. It is available on Amazon and it will definitely answer your questions. Cheers.

Duncan Taylor · Answer

Don't try to time the top or bottom, but do ride the trend. Meaning, you said you think the market is still on the upswing. That means you should still be buying into it. But, if you feel the upward trend is slowing, you should too. If you feel the trend is significantly ahead of the mean, like it is in the US right now, you should probably wait until a correction happens. If you feel the trend is behind the mean, load up and enjoy the ride! The exception is if you see some artificial factor you should adjust accordingly. Also, if you see something looming that will affect your market, like a large employer coming to the area or announcing they are moving out of the area you should adjust accordingly for that too. Lastly, consider the political climate. If the politicians have draw a great big bullseye on your back because of the way you do business, it's probably time to adjust.

Engelo Rumora · Answer

As you mentioned in your post @Alex Rossol I wouldn't base an investment decision on hope. "Hoping" the market will appreciate in value or "hoping" to buy at the right time is not a sustainable way to invest in real estate in my opinion. Good deals are always out there no matter what the market is doing. Look at the numbers in the deal and if they make sense and suit your end strategy than you know its a good investment. Thanks and have a great day.

Ellis San Jose · Answer

@Alex Rossol It is important to know where you are in the market cycle of your investment farm. Understand what drives it. My market (Southern California) is historically a boom & bust market. So it is critical for me to pay attention & not to get overconfident or unreasonably fearful. Can you time the very top & the very bottom consistently? Probably not, but you don't need to be that exact. The part of the cycle you need to be very respectful of is when there is a speculative bubble. If you have too many properties with bad financing & properties that won't support the debt load that will equal PAIN. Don't think you should only invest in bottoms. Hone your skills to know how to make prudent investments today. If it cash flows & you have good financing do you really care if the value fluctuates? Some of the indicators that I have learned to follow for my market (Thanks for the education Bruce Norris!) Affordability, Net Migration, Days on Market(velocity of inventory) , % of Distressed Sales, and a few more.

Eric Black · Answer

Hi Alex, You are right, you cannot, and should not try to time the market. If you figure out how then you can stop worrying about buying properties and just make your fortune teaching people how to do it. IMO you should continue to invest in properties right now, if they make sense right now. If they cash flow appropriately now then it won't matter what happens in the market, you'll be making money. It all depends on your risk tolerance. True, you might buy something and a year from now it will be less than you bought it for. If you're going to focus on this then you're in this business for the wrong reason. If it's making you money then you should be satisfied. Best of luck.