Sunday, April 28th, 2019 April28th2019

Sell for More Trivia: Should investors wait for the next market crash?

Published on April 28th, 2019

Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.

 

Recently a number of investors have told me they’re waiting for a market crash before purchasing more commercial real estate.  They reason that if their goal is to buy low and sell high…then now is not the time to buy.

Let’s talk about that philosophy for a moment.

The first issue here is the investor loses momentum if they’re sitting on the sideline for months or years at a time.  They won’t be tuned in to the deals that are getting done.  It’s best to stay in the game with everyone else so you don’t lose your edge.  This is especially true when you find a potentially lucrative investment deal.  If you can’t make a decision when one is quickly needed, you’re going to miss out.

Next, commercial real estate brokers and syndicators prefer to offer deals to the people who always show an interest in what they’re offering.  If you’re not around because you’re waiting for the market to slow, you’ll quickly find yourself out of the proverbial loop.

Another problem is determining when the market has actually crashed.  Different investors have their own opinions on what defines the bottom of the real estate market, so there really isn’t a barometer that accurately measures a market’s low point. Certain properties may be available at reduced prices for a multitude of reasons, but this can happen even when the market is booming.

Another potential issue is the availability of financing.  In a distressed market, banks and other lenders might not be motivated to finance a property.  The last time this happened was following the financial crisis of 2008-2009.  The bottom line is that in a down market, banks get scared and stop lending.  Debt is much easier to get in a strong real estate market.

So the best course of action is probably not to sit and wait for the market to crash before trying to acquire and finance a property.  It’s important to remember that real estate is a cyclical business.  Each cycle has its peaks and valleys but in practice it’s hard to predict when a property is at its lowest point before buying, or its highest point if selling is a consideration.  The commercial real estate market is too complicated, too volatile, too diverse to make such predictions.

Keep in mind, I’m not saying you should buy at any price and overpay for a property.  In fact, I encourage you to never overpay.  What I am saying is that investors should adjust their expectations based on the stage of the real estate cycle.  You should position yourself to take advantage of buying opportunities in good and bad markets.  Predicting a crash is hard.  Getting financing after a crash is hard.  And history shows there is a lot of money to be made as a real estate investor regardless of when you invest in a property.

Don’t sit on the sideline waiting for your turn to play.  Stay in the game.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 414.324.4938, 615.603.9770, click to schedule a call or Beau@ProwessIRES.com