We all remember that age-old expression about investing…”Buy low and sell high.” This may sound simple, but how the heck do you do this consistently?
But in terms of buying at the right time, perhaps Baron Rothschild said it best when he said that “The time to buy is when there’s blood in the streets.” Clearly within commercial real estate, when you’re looking back over the last 40 years or so, this has definitely been the time to buy…when everyone is really worried about whether or not that great economy will ever return once again.
But how do you know whenever it’s the best time to sell your commercial property? Ideally you’ll want to sell it whenever property prices are peaking, but with this in mind, how can you really know for sure when this is happening? It’s difficult to know for sure, but one indicator that this is happening is when people who have never been solid real estate investors before begin talking like they’re solid real estate investors.
Whenever real estate values are rising, buying almost any property can make you look like a real estate investment genius–just several months or maybe even several years down the road.
But with respect to selling, in some real estate markets right here in the U.S. there are apartment buildings selling right now at 4% cap rates. Keeping this in mind, you have to ask yourself the following question: “Will cap rates continue to go lower if I keep holding onto this property?” Conversely, potential buyers of these same buildings have to be asking themselves, “Can I really buy this building at a 4% cap rate, and expect to sell it and make a profit someday by selling it at a 2-3% cap rate?” Counting on investors to give you a nice profit someday by buying you out at a 2-3% cap rate…is a very risky venture.
There is no one-size-fits-all way to know for certain that you’re selling at the very top of the market. Even as we speak, real estate markets all over the country tend to be performing in alignment with the state of their local economies. However, there are certain other major factors to keep in mind, too, and one of these is the availability of good financing. When property values were rising a number of years ago, good financing could be obtained relatively easily. But when everything went south and then collapsed, financing dried up, making a very difficult real estate market even more difficult. So when you see lenders granting real estate loans to people and in situations that you feel could easily turn out to be dangerous, it could be time for you to sell. Similarly, when people who have never been solid real estate investors begin buying properties, gloating about their gains, and becoming very cocky, it could be time to sell, too.
And finally, if you have the presence and the foresight to be able to foresee that your building or the location of it will become less desirable in the future, or if you observe that shifting economic trends may make your building less desirable in the future, consider getting out ahead of the trend, selling your property, and exchanging into a property that will give you much better upside.