Thoughts as we approach the top of the market?

[David J.]

Few would deny that the market is cyclical. It goes up for a few years then down for a few and repeat. 

I want to hear from other investors your thoughts about how to handle this. We are nearing that top (especially in my area) and it scare me a little. I want to keep investing but I worry about timing. Should I hold on to my cash and wait for the downward cycle to begin?

http://www.eastbaytimes.com/2016/10/11/real-estate...

[Jonathan Twombly]

@David J.  Bigger Pockets is a magical island in which the word "correction" is forbidden.  You may get kicked off the island for mentioning it.  Me, too, now that I have engaged with you.

We are not buying at the moment and have not been for a while.  Assets are overpriced and I don't want to be the last one holding the bag.  I advise my clients to be patient, be disciplined, and get dry powder ready for the buying opportunity to come.  The people with cash on hand when the bargains appear again are the ones who will truly get rich.  When people reach out to me to join my investment platform, I get them on the phone and tell them, "I'd love to have you in my platform, but if the money is burning a hole in your pocket and you must invest now, I am not the guy for you.  If you are prepared to wait 12-24 months for when the buying opportunity comes again, then we can talk."

One of my best friends is a fund manager here in New York.  He took his job right when the financial crisis hit and he was overwhelmed for several weeks.  When he came up for air, we got together, and I asked him, "Why were you so busy?  Were you selling everything to stop losses?"   He looked at me like my hair was on fire.  "Selling? No.  We were buying like crazy.  There were so many bargains."  He's a devout follower of Warren Buffett, who says, "Be scared when other people are greedy; be greedy when other people are scared."

There is a lot of greed on Bigger Pockets these days, and a lot of FOMO (Fear of Missing Out).  People who have watched from the sidelines as other people got rich are now rushing to cash in, fearful that the market will pass them by and they will never get into the game because they will be priced out forever.  I know this feeling.  Before I was a professional investor, I was a lawyer who bought my home at the very top of the last bubble, because I was afraid that if I did not move, prices would go even higher.  I bought and lost 25% of the value of my apartment within a few months.  It's come back, but if I had waited, I could have bought a bigger apartment for less money, and more appreciation on the upswing now.  I think there are a lot of people rushing to buy right now who are going to regret their decision in 12 months time.

If you are scared, that means your instincts are correct.  Listen to your gut.

You're not the only one worried about the imminent downturn.  Two days ago, the National Real Estate Investor published an article entitled, Pullback Continues in the Investment Sales Market for Apartment Properties".  The sub-headline was "Sales of single properties are slowing, suggesting broad correction in the market."  (By single properties, they mean properties not part of a portfolio.)