Make big Money in Commercial Real Estate: Commercial Loans
Savvy real estate investors know that making big money in the commercial real estate market involves managing risks. The common arbitrage theory of “buy low and sell high” holds firm in buying and selling real estate, but in order to properly read the market, one must familiarize themselves with the real estate cycle. The real estate cycle is a tool that when used correctly can provide investors with the substantial returns they look for in the market. Whether it involves financing the deal with commercial loans or straight forward purchases, understanding the real estate cycle helps to lower risks. The following is an outline of the traditional real estate cycle.
- Expansion phase: During this phase, the market experiences a rising population, rising employment rates, and increasing income levels. Vacancies are decreasing and rents are rising.
- Peak phase: This is usually the time for investors to sell for maximum profits. This is a seller’s market and typically one will observe a rise in building projects and bidding wars occurring between investors. Listings on the market are short term.
- Contraction phase: In this phase, there may be evidence of overbuilding as the amount of new projects outweighs the amount of demand in the market. Inflation is up, interest rates will be creeping up, and vacancy rates will continue to rise. During this period foreclosure begin to rise.
- Recession phase:In this stage, real estate becomes more difficult to sell, therefore properties remain on the market for a longer period of time. Property values are decreasing, interest rates are high, and landlord are competing for new tenants.
- Bottom phase: In this phase, unemployment and inflation are high, making it a great time for buyers but a scary time for sellers. Demand for apartments is decreasing.
- Recovery phase: In this phase, local economies begin to show sign of recovery as vacancies decrease and money begins to flow back into the market.
Using these phases of the real estate cycle, investors will be able to identify the most opportunistic times to buy, sell, or hold their commercial real estate properties. Contact the specialists today for further information regarding commercial loans.