Real estate, like any other investment vehicle, is subject to boom and bust cycles as part of the larger economy. While the reasons behind these booms and busts may be debated, the fact is that they exist and we are currently riding through another cycle. I have been investing in real estate long enough now that I have witnessed both the boom times and the busts. What’s more, I am old enough to remember other cycles like the S&L Crisis. By remembering and riding these waves up and down, I have gained valuable experience, which provides insight into where we are in the cycle today. This insight enables me to think strategically on where to and how to steer my real estate investing business.
So where are we now?
We are definitely back into the boom times again. I say this not because I have studied loads of big economic data and crunched numbers from the Fed or Goldman Sachs, but rather because of what I am seeing and hearing around me — what some might call “small data.” I really do not have time to study all that big data. Sure, I read some of the reports from time to time, but for me small data is a much better indicator, if you know what to look for. This is especially true in my opinion at the local level.
Why do I think we are back in a boom phase? There are numerous small data indicators that lead me to that conclusion. Here are 7 that I am seeing today.
7 Signs That Prove the Real Estate Industry is Booming Again
It is hard to find good contractor crews who even have time to look at your job.
Everyone is busy, working hard, and does not have time to take on more work. This is a very different scenario from the bust of 2008 when contractors were calling me hungry and begging for work. Now it is taking real effort to find quality workers.
People are asking me to sell.
This simply did not happen during the bust times. I have had more than one person ask me recently if I would consider selling portions of my portfolio. Perhaps I should. Or perhaps I should ride the wave up a bit higher or even wait for the next one in a few years. A tough and interesting decision, but I’ll leave that for another post.
Our local real estate club is busting at the seams again.
I can remember back in 2005 and 2006 at the height of the last boom, our local real estate club could not find a big enough room to hold a meeting. When the crash came, I was lucky enough to become president of the organization, and I watched membership dramatically drop to near starvation levels. I actually thought we might have to close out doors. But we survived, and today there are lots and lots of new faces looking to get into real estate again.
People are once again asking me how to get into real estate.
I make no secret about what I do, and I am always glad to help someone out. During the bust, I remember most folks asking me how we were surviving and how we were going to make it. No more. Now everyone wants to know my secret and how to get into it. It’s all out there if you want to take the time to read it.
Prices are rising.
Any investment property that is priced properly and in a decent area is not staying on the market long. Things are moving, and the money is flowing.
The Californians are back.
In 2006, the folks from Southern California were swarming all over Memphis buying up properties faster than anything I had ever seen. They would bid on anything and bid up prices to an unreasonable level. I even remember one investor telling me he was happy to get a 1% cap rate! Many of them disappeared after and went bust after 2008. How could they not bust at a 1% cap? Those guys are coming back. We are not back at the 1% cap rate levels, but we are getting there.
People are asking to loan me money.
Yes, the money is definitely flowing again. And it is not just me. I have spoken to several people who tell me that they are in the same situation. There is simply a lot of money out there chasing the deals now (helping in part to drive prices up). Money was quite scarce a few years ago.
This boom we are experiencing will not last, and another bust will happen. When? Who knows. No one can tell — and do not let anyone convince you they can. I personally do not think we have reached the top. It simply does not feel the same as it did in 2007, at least not yet. The wild frenzy is not there, but it is heating up.
So what should you do business-wise while things are heating up? First, always listen to your numbers. Do not overbid and do not get in a heated bidding war. Let the fools have it. I can remember during the craziness in 2008, I lost every bid I submitted and was basically forced to sit on the sidelines. I was upset at sitting on the sidelines while it was happening, but I am rather glad I was looking back. Do not worry about if you have to sit on the sidelines for a while. Be patient.
Second, consider selling. The money is flowing and now may be the time. There is nothing like a bidding war for one of your properties.
Third, consolidate your portfolio, pay off debt, and build up cash. When the bust comes — not if, but when — you will thank me for it. Remember that nothing speaks louder than cash, especially if no one else has any.
Otherwise, keep doing what you are doing. Just learn to look for and recognize the small data signs in your area, as they may not be the same everywhere. In this way, you can get a head of the wave and not be left holding the bag, so to speak, as so many were in 2008.
Investors: What are you seeing in your local market?
Let me know with a comment!