“What are my options?”
Like all markets, real estate has its ups and downs. While they can be motivated by many factors, the driving force of market swings are due to the cyclical imbalances of supply and demand.
Timing the market
What if you woke up one day to widespread reports of a blazing hot housing market where buyers are bidding over asking, interest rates are low and inventory is scarce. If you were a homeowner, or a prospective one, in Q4 2020, this may sound familiar. When a period of enthusiastic craze comes about, were you prepared to engage? The shining green light blinded many into making impulsive decisions, leaving most in unfavorable situations.
Think it through
Trying to ‘time the market’ in most cases is wishful thinking, leaving those afraid to act in a state of preparatory paralysis indefinitely. Those who were pushing off purchasing a home due to financial constraints or a prolonged search ended up compromising on those deterrents. Forced to bid against other buyers or settling for a subpar property further inflamed the sellers’ market. Those who had a property to sell did well, if they had a rationale plan. Some sellers’ inflated excitement caused them to seek absurd asking prices where in some cases locked them out of the market entirely. Others who sold in a timely manner for good value did not account for the next step, where are they going now? Whether their profits were washed away through overpriced temporary rentals or heightened rates on their new acquisition, not identifying the next move practically compromised the underlying benefit.
Always have a plan B
When creating a plan to sell or purchase real estate, it’s critical to analyze and understand the opportunity cost of your actions. On the buyers’ side, if you find yourself in a uphill battle, pause and think. Consider the fundamentals here, for you are not buying a sweatshirt. If the property is overvalued, assess by how much, as there are plenty of properties that are located in established or up-and-coming neighborhoods where that heightened valuation is not unsound. If the property requires a lot of work or is in a subpar location, consider the weight of the investment, not just in terms of capital but also the duration you realistically see yourself remaining there. When it comes to the sellers’ perspective, ensure you identify your next living situation and don’t be greedy. If you did not receive the price you need but have a living arrangement lined up, entertain renting the home to a serious tenant who might purchase it later on while covering your expenses. If you plan properly, you can greatly benefit from a patient plan by acquiring your ideal property through a 1031 exchange after a year + rental to maximize your investment and further compound its value.
Strategic foresight
Usually, short term accomplishments are not as fulfilling as long term ones. Good things take time and patience is key. During the hot market we interviewed a couple of home owners and builders to find out what influenced their decisions and how they felt about the outcomes. We contacted an active developer, KOSL Building, who surprisingly stated that “we were more indirectly effected than anything else. The turbulent housing market was more so for homes under the $2M range where the higher end market was relatively stable as it always has been.” They explained that although there was an uptick in demand, it was in a different manner. “The sense of urgency was a different mentality. We had clients who were looking to build a custom home while remaining in their current house with the intention to capitalize on the market based on the timely completion of their new estate.” Further, they had mentioned that companies permitting reimbursements for rentals had become a focal point of many residents. “There was a point where we had offers to rent a couple of our homes for 3x the standard rate. It was an interesting dynamic that benefited all parties.” One of the clients KOSL had built a home for stated “the timing could not have worked out better!” Mentioning that her family was able to move into their custom home a month earlier than anticipated and was able to sell their home as initially intended. Another client that was a former tenant at one of KOSL’s homes said “we wanted to acclimate to the new area without the need to commit from the onset. After settling into the home, we could never imagine moving back to the City. Providing us with top notch service, building a quality product and permitting us to end the lease early in order to purchase their home, we are thankful to have worked with KOSL and their team.”
Navigating turbulent conditions is never a simple task. It takes discipline and knowledge to make the right moves at the right time. You can never be too prepared for any given situation for you never know when it may arise.
Are you prepared for market swings? Comment below!
