Keeping ahead of the curve

3 Replies

Hello Fellow Investors

I am fairly new to this game of real estate investing and am in an aggressive growth phase. It is about 2 years since I have been investing, and will be concluding 8 deals by the end of this year.

I have listened to all the podcasts and read forums actively. Though I was not an investor during the down turn of 2009 but have seen the tumultuous time. What I am interested to know is what are the lead indicators that would warn an investor to turn from aggressive mode to defensive or conservative mode. How do seasoned investors get foresight , are there any publications, statistics  one should always be watching locally and nationally in order to notice the winds of change.

I am very excited and enthusisatic about the real estate investment game but at the same time would like to learn the lead indicators.

Appreciate your insight and foresight.



If you are flipping houses the local "months supply of inventory" (MSI) seems to be the one that we get the most use out of.  When this number is increasing that means that either more houses are coming on market (competition) or the buyers are not as active (market slowing down).  For us anything less than 4 months is pretty bullish and we will buy just about any deal that meets our minimum requirements if we can flip it within a month or two.  4-6 months MSI we take a second look and only pick houses that are really safe and quick 1 month flips.  Anything over 6 months and we stick with the low-end starter home properties and flips that we can market to rental property investors.  The buyers really start drying up with a high MSI and you can end up sitting on even nice houses for a long time.

If you are a buy and hold investor for rentals we usually save cash or do flips when the MSI is low and when it gets higher we start looking for prices to drop and that is the time to start picking up rental properties for the long term.

I have looked at many different indicators, price change, sales volume, etc. but none of them really seem to correlate to performance for a property better than MSI.  Just remember that it is a lagging indicator and like most of them, it goes up faster than it comes down. 

I do not worry about any national indicators since they really do not apply to my local market.

Again, RE is unique and in reality there are few indicators that may apply to other financial markets that will apply to RE. The RE market in the area you concentrate in is the best indicator, rents, average prices, particular neighborhoods, municipal growth, local economic conditions.

When you have rising bond prices interest rates will follow, money tightens, loans can get to be a bit harder but the real effect is less buying power from the public. Local prices may stall, but at that point you can offer incentives like seller financing. So, it depends on your business goals and the niche you play in.

When others aren't buying, buy, when others are buying, buy! In the 80's when interest rates were at 12% for prime loans, the market slowed, however, those who could afford to buy cleaned up. Bad times are actually good times.

I'd say regardless of economic indicators or the national stage, knowing the local market conditions is key to investing, if the deal will fly, you should buy! If a property fits your goals and expectations under local conditions not much on the national stage will effect that in an active market.

Don't try to make it harder than it is, RE is pretty easy if you have a grasp of your local market, understand the basics and you understand the financing. :)   

Thanks for the insights. I will watch the MSI as well as interest and bond movements , in addition to the local area feel.



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