Timing the real estate market for an investment property is one of the hardest things to do and one of the most asked questions, and I do have an answer to that question at the bottom of this article.

The Hearst family was once asked how they do so well with their real estate investments and how they time the market. Their reply was that if you never sell, you don’t have to worry about timing the market. There is, of course, some truth to that, and really it goes down to one simple strategy: buy for cash flow, hope for but don’t expect appreciation.

Investors looking to quickly turn a property with minimal improvements or repositioning really aren’t investing in real estate; they are speculating that the market will continue to rise. After all, a rising tide raises all ships. As an investment broker, I would never recommend any of my clients make a purchase with the "hope" of anything. Instead, investors will have a plan of action as to how they will increase the value of an investment. Either through repositioning or retenanting the asset, or by making improvements to the building (adding square footage, changing frontage, etc.) that will improve its desirability and increase revenue, or by upgrading systems to lower expenses.

This strategy for improving value is a good one. Most real estate investments are traded on their capitalization rates ("CAP Rate"). By improving the net operating income, an investor can dramatically increase the value of a property. For instance, if a property trades at a 5.0% CAP Rate, every dollar of increased net operating income (either done by increasing rents or decreasing expenses) will equate to a twenty-dollar increase in value. So if you, as the investor, put in $100,000 in upgrades but increased the net operating income by $20,000 for the year, this would equate to a $400,000 increase in value, a great return by any measure.

Investors should not worry about minor market fluctuations in pricing one sees over the normal life cycle of an investment or about fluctuations outside their control such as interest rates. Instead, by focusing on properties with positive stabilized cash flow, an investor mitigates these risks and can hold the property until the time is right to sell. Focusing on the cash flow, their holding timeline, and how to increase the net operating income lets an investor create a plan of action for their investment that is almost foolproof. An investor must still take into consideration the fundamentals of investing in real estate: location, demographics, area growth, competition, and demand. By doing so, it is easy to see the time to buy an investment property. It is any time after you’ve done your homework for the asset class and have a plan of action items in your control for your investment.

For more information on metrics you can utilize to maximize the success of your business location, please do not hesitate to reach out to info@cbicommercial.com.