Understanding the Real Estate Cycle (& Why NOW is the Time to Buy!)

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In most parts of the country, winter weather is in full effect, keeping real estate volume suppressed until nicer weather finds its way back. It’s an interesting annual cycle that most markets experience. As a real estate investor, it’s important to understand how the real estate cycle in your market affects both sales and rentals.

For those investors planning to buy and sell real estate this year, it’s essential to gauge just how much your market is impacted by the seasonal cycle. For some markets that have little variation in the weather, the real estate cycle probably isn’t as pronounced. But for many markets that have very distinct seasons, it is common to see sales slow down in the winter and pick back up in the spring and summer.

Related: Step One When Buying Out-of-State: Forget the Houses & Study the Market

The Challenges of Selling in Winter

It comes as no surprise that the majority of homebuyers aren’t out shopping for homes in the dead of winter. Besides the fact that the cold temperatures keep people indoors, many buyers have children in school and would prefer to wait until the end of the school year to pack up their families and move to a new location.

Sellers understand this cycle as well. For one, with fewer buyers in the market, there is less competition, and therefore the notion is that selling a house in the winter will not allow the seller to maximize his or her potential selling price. Also, as most homeowners will tell you, houses simply don’t show as well in the winter (again, I’m not talking about Southern California or South Florida). With dead lawns and naked trees, property in general just doesn’t have the same curb appeal as the spring and summer months.

It Applies to Rentals, Too

I actually bought a handful of rental properties in Cleveland last year. (As an aside, I spent some time up there and was very intrigued with the price-to-rent ratios, even in very good neighborhoods with very strong rental markets.) One of the interesting dynamics in Cleveland, however, is the fact that almost all renters get situated before Thanksgiving. With the harsh winters, nobody wants to be out looking for a place to rent after it’s turned cold. My property manager basically told me that we need to get the properties rented in the fall because after that, we wouldn’t be able to place tenants until things started to thaw out.

Related: Revealed: The Top 20 U.S. Markets With the Highest Rental Returns

The Importance of Planning Ahead

I actually have a new construction property that unfortunately got completed in December. However, knowing that the market for buyers was going to be thin during the winter months, I made sure I had inexpensive financing on the property and simply built some carrying cost into my numbers in anticipation of the spring selling season.

There isn’t necessarily anything wrong with having a property ready to sell in the winter. However, it’s important to plan ahead and prepare for the possibility that you will have to carry the property until the market picks back up.

As a real estate investor, understanding how the yearly cycle affects your ability to sell is important to your success. I would venture to say that right now is a GREAT time to begin looking for those properties you want to fix and flip. Whether you’re looking for properties on the MLS or digging for off-market properties, the competition isn’t quite as fierce as it will be in a few months. Also, you have time to acquire the property and get it renovated in time for the spring selling season.

What have found in your market? Are you anticipating the market to heat up in the coming months?

Leave a comment below, and let’s discuss!

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

4 Comments

  1. Troy Harbin

    Great post Ken, As being in South Georgia the winters here are well, you know ( ain’t really winter from Philly) But the climate has an effect on everything including Real Estate. I like how you recognized that in the cycle of where we currently are, that buying Real Estate now give you a jump on the buying that’s increasing during the summer months. And the challenges that buying in the winter poses.Will keep this in mind.

  2. David McDonald

    I liked your post as well Ken,I know that we all have been told as investors, to really know your market and the cycle that your market is in (of course) but you don’t hear too much about how the weather has an effect on your buying and selling. I live in Southwest Florida, (Punta Gorda) and the one thing that I recognized is that when winter hits up north that brings the snowbirds down here to sunny Florida.Now many snowbirds have their warm little nest already here, but many new snowbirds come down each year looking to buy their seasonal home here in the sunshine state. I do very well in selling my properties here in the warm weather, when the weather up North is cold So Kin you are right, weather dose play a big part in your buying and selling, of course depending on what state you are currently living in.

    David McDonald
    CEO / BlueHousePropertiesLlc

  3. Jim Gramata

    In all of my Chicago investment properties (and with my clients who occasionally ask us to rent their condo or homes) I definitely follow the seasonal cycles.

    In fact, I just signed a client a two year lease in January for a 2 bed condo off Michigan Ave for $3500/mo, but rather than sticking to the 12 month cycle (or 24 month in this case) we moved the lease expiration to April (not January) to maximize the best rental market and rental pool when this unit comes back on market. It is a disadvantage to the tenant because they have less to no competition in the winter and can negotiate their rent more favorably in their direction, however in all cases I push expirations to no earlier than March 30 (and no later than Sept 30). Period. No exceptions.

    JG

  4. David duCille

    I sat down and pored through historic numbers in my MLS for the past several years (Tampa Fl) and what I determined was it’s really the market not the climate that drives things. More people are coming out of their waiting period post foreclosure and short sale and are looking to buy again because renting is very expensive here. As a result the past 2 winters show plenty of activity for selling homes as opposed to back during the years of the crash where things were just very slow.

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