Trying to time the market?

Question

I know they say you should never time the market, and I 100% agree. But for someone already selling a property now, would it be wise to try and sit on the sidelines now since many are saying we may be at the top of a market cycle? Would it be better to cash out, pay the taxes and sit on the cash to see if this really plays out to the downside in the near future? My intentions in that case would be to pick up some properties at a later date if that occurs and we start seeing some deals. Or is it always better to 1031 exchange the property and just deal with whatever happens in the market? Do investment properties, such as multi families take as big a hit if the market pulls back or we hit a recession? I.e. would I get an opportunity to buy a lot cheaper if the market did pull back, or would it be marginal compared to what I'd lose if I paid the taxes?

Or another option is to roll just the profit portion into an opportunity zone fund and then put the rest of the cash on the side. In that case I'd still be in the game without paying taxes on the gains just yet, and have a good amount of cash to play with if the market does pull back. I know nobody has a crystal ball, just looking for some thoughts on the best way to play this.

Thanks

Or another option is to roll just the profit portion into an opportunity zone fund and then put the rest of the cash on the side. In that case I'd still be in the game without paying taxes on the gains just yet, and have a good amount of cash to play with if the market does pull back. I know nobody has a crystal ball, just looking for some thoughts on the best way to play this.

Thanks

Russell Brazil · Answer

Since the Great Depression, on a national level, prices have only gone down in 2 periods of time. One of those times was fairly recent, the housing collapse of a decade ago, and that was the only significant drop. The other drop in the early 90s was a drop of a couple thousand dollars.

But all real estate obviously does not move in accord.  While real estate prices generally rise....there are locations that are much more cyclical, and there are asset types and prices that are more cyclical. Bay Area luxury real estate, and Las Vegas are both examples of boom and bust cycles.  While then other areas outpace the averages by far.

If you live in a boom/bust cycle market, you probably should be more cautious. However people have been calling the top for 5 years now. Guess what, everyone has been wrong for the past 5 years.

You should always be continuously buying. If the market were for some reason to drop, that just means to buy more and dollar cost average your basis down.

Joe Villeneuve · Answer

I'm confused.  You start your post by saying, "I know they say you should never time the market, and I 100% agree."...and then, you try really hard to contradict that statement.  Which is it?

Dan Perlman · Answer

@Joe Villeneuve

You could have atleast tried be helpful to him considering you took the time to answer...

Paul Choi · Answer

If your current property has achieved max value and it is just following the market trends, I would sell IMO.  and reinvest in something with more upside, like a value add.  Overall, never stop playing the REI game - buying and selling.  People have said market has peaked for 5 years and they missed out on 5 years of growth.

Ray S. · Answer

It's in a flood zone. Flood insurance keeps skyrocketing but rents aren't going up. Lots of competing rental inventory popping up. It's a little under a 5 cap. Property values have been softening. Thinking it may be time to cash out and look for better opportunities or move to cash.

Brant Richardson · Answer

Why are you "already selling a property now"?

Right now I feel like I would need to stretch my parameters and settle for a barely okay deal to buy another unit.  With the possibility of a down turn I want a solidly good deal.  I plan to hold out for the cycle to turn unless I am surprised by a good deal.  So my real estate investing is stalled for the moment.  If the economy cycles every 8-10 years, its time.  This last week in particular the stock market has been very volatile which probably means nothing but makes me a little nervous.     I'm not worried enough to start selling off the real estate portfolio but my cash is waiting for an opportunity and I have a couple units that are free and clear waiting to be refinanced, quite a bit of opportunity sitting dormant.  I have been expecting the stock market to drop for over three years so obviously my crystal ball does not work.

If I added in the need to avoid taxes with a 1031 it would shift my need for a really good deal a little further toward settling for an okay deal, just run your number to figure out how much.

Ray S. · Answer

I own this property 100%. If you say it's when and not if, why not consider ways to get out of the property and sit in cash until when it goes down? The property prices have been softening and rents have been flat for years.

Brian Van Pelt · Answer

@Ray S.At the bottom of the last market Lenders were still doing refi and HELOC's  mostly to people with high credit scores and 40% plus equity. The price you would pay in interest by taking out the money now is what will hurt you. I would use any cash you have to pay off existing mortgages and ride the market down "when" not "if" it turns.

Ray S. · Answer

I agree, and that's exactly what I did. Bought this properly near the bottom of the last cycle in cash, added value and saw appreciation in the market and now have the opportunity to sell and what could be possibly be the top of the market cycle. Are you saying the better strategy is to not sell at all, and then take debt if/when the market bottoms out to buy more property? Wouldn't it be harder to do a cash out refi or HELOC if they market was in the dumps?  If I took out 75-80% lets say, this property would probably just break even.

Brian Van Pelt · Answer

@Ray S. has a valid point .... but ... for the wrong reasons. His hypothesis is basically do I take out the equity in a property and hold it as cash to purchase properties when the market bottoms out and properties are cheaper. This is classic BRRRR thinking. and hypothetically works if you first bought the property at the bottom of the last RE cycle and rode the appreciation cycle up to current levels. If on the other hand you bought halfway up the cycle and the down turn pushes your values below your purchase price, your end up with negative equity.Rather then BRRRR, you should if possible buy with cash, then when the market turns you have the equity needed to purchase  at or near the bottom, without having to cash out and pay the interest from the top to the bottom of the next cycle.

Trying to time the market?

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