The 4 Phases Of A Market Cycle & How To Invest In The Right One

There are typically four cycles in a real estate market - the upturn, boom, downturn, and stabilization.

Upturn indicates a rising market. It is growing in population and employers. People are coming in. It’s still in the upswing and there are many opportunities to be found.

Boom is when a market is already HOT, HOT, HOT. Everyone knows about this market and wants to be there. It’s growing, but at the top end of it’ growth cycle.

Downturn is when the market begins to contract. The population is declining, jobs are leaving. Avoid these at all costs.

Stabilization is when a market is holding steady. There’s not a lot of growth or movement one way or the other.

The ideal location in which to invest in a market currently heading for an upturn, a “rising” market. This is generally the best way to be able to find a deal that will quickly gain inequity and give you the best returns.

If you are unable to find a rising market, then you may need to look elsewhere for something that meets your specific needs. I personally prefer to look in stable, mature markets if I do not find a rising market that suits my investment strategies when I am ready to make a real estate investment purchase.

In a stable market, there won’t be much equity gain from the market itself, but there are ways to find a good building that you can “force” equity into. We will talk about that more in the next chapter.

Third down on my list of preferences, is the Boom Market. I typically avoid buying in markets that are “hot, hot, hot” because they are sellers’ markets. If you’re a buyer in a sellers’ market, it's by definition NOT a buyer’s market. In other words, it’s going to be very difficult to find a good deal. If you’re in the feeding frenzy, it’s likely you’ll just get scraps.

There ARE ways to find some decent deals in a booming market, but that generally requires you to have excellent relationships with people in the market that can help you find certain “off-market” deals. As a general rule, unless you already have these relationships, I’d avoid these markets.

Lastly, there’s the down-turning market. Avoid these markets if your goal is to cash flow and make money now. If people and employers are leaving town, there won’t be the necessary population to rent your properties. This is not to say that you cannot make money on a property purchased during a downturn, but you will need a long-term plan and the financial wherewithal to execute it, including potentially paying the note on the land for an indeterminate length of time while you wait for things in the area to change.