Should I Be In the Market or Out of the Market?

Should I Be In the Market or Out of the Market?

Should I be in the market or out of the market? This is a question I hear from investors every week.

Why? Markets and assets tend to go up over time. Not in 12, 24, or 36 months, but over 10, 20, or 30 years. If you employ a conservative defensive strategy when beginning with a real estate investment and focus on the core pillars of real estate, financial success will come your way – and even greater financial success when the market softens. Do not let opportunity cost be your Achilles heel; trying to time a market is just a trying effort in futility.

Since no one knows when we will see the highs and lows of any market, I have the same answer: be in the market when you do your homework.

Below are key property metrics that will help you when deciding to be in or out of the market and become a successful long-term investor.

Look for Key Metrics

Look for these property metrics when making an investment in any market. It is important you understand these and ask questions of the asset sponsor and their track record.

Location– jobs and projected job growth. Look at past job growth, company relocations, and probable job growth. The local Chamber of Commerce, as well as national and regional business publications, are good sources since they promote their state and region for opportunities to both employers and employees.

Buy at the right price– what is the right price? It’s whatever makes sense long-term and in a potential horizontal market. You will never be presented a proforma that projects losing money, so ask the project sponsor to show you the “what if’s” or their exit strategies. How will the asset perform with occupancy at 85% or rents that are 10% below the proforma you were presented? The answers to these questions will give you a much better idea of the health of the asset.

Longer term debt is preferable– Avoid short-term debt when possible unless there is a CLEAR exit strategy. The years between 2008 and 2010 were brutal to investors when their short-term debt loans matured and there were little or no options to refinance or sell. Look for assets that have at least a 10 to 12-year term with a 30-year amortization. Some loan products offer up to a 40-year term with a 40-year amortization. Eliminating interest rate risk could be significant in your investing criteria. Know the debt terms of the investment and probable exit strategies to avoid that ticking time bomb should your loan mature in a down market.

Operational management– Property and asset management will prevail in leaner times. Know the sponsor and management team’s past performance. How often does the sponsor provide this information, and with what type of reporting? This is paramount to manage the asset in both performing and underperforming markets.

Think Long Term

When you mitigate the possible risk on the front end, you will be rewarded in the long run.

Finally, ask yourself what the real estate in which you invested in 1998 look like today? What will your real estate assets look like in 2038?

If you’re interested in learning more about our investment strategy and opportunities with Presario, contact us. Make sure to also sign up for our monthly VIP newsletter and follow us on social media for the latest insights and information.