Timing is everything when it comes to investing in real estate. When you buy rental property, when you sell rental property, when you transition into a 1031 exchange…the results of these endeavors will largely depend on market conditions and competition.
That doesn’t mean you should wait around for the perfect moment. There is no perfect moment.
But, some moments are more perfect than others for closing a deal, shifting resources, and refinancing a loan.
Success in real estate requires an understanding of market cycles. If you know when to buy, sell, or hold, you’re going to make informed, strategic decisions.
So let’s break down these market cycles. As local property management experts, we can tell you how these shifts apply to our market, and what you can do to best position your investment properties as things peak and drop in the ever-changing real estate market around Central Florida.
Understanding Real Estate Market Cycles
Real estate markets are not exactly linear. Rather than moving in a straight line, they operate in cycles that vary in length and intensity. The market responds to things like economic conditions, political stability or instability, and consumer confidence and behavior. The real estate cycles we most frequently move through include four phases:
- Recovery
- Expansion
- Hyper Supply
- Recession
Each phase presents different opportunities and challenges for investors.
Recovery Phase: A Good Time to Review Investment Goals and Do Some Pre-Planning
We find ourselves in a recovery phase when the market has just bounced back from a downturn. Generally, there are lower property values and demand is slowly picking up. There are very few new construction communities being built and development is targeted. For rental property owners, there are stable rents or maybe they’ll begin to increase a little bit.
Investment strategies in this phase are subtle but impactful. During recovery, public sentiment is cautious, economically, and competition is relatively low. Investors may find undervalued properties or distressed sellers. While appreciation may not be immediate, the groundwork is being laid for long-term growth, and any buy-and-hold strategy will provide impressive returns in the long term.
Consider, for example, markets like Orlando and Tampa, which are likely to recover quickly due to tourism and job growth in healthcare and tech. Keep an eye on areas where infrastructure investments are happening, even if the broader economy is still hesitant.
Expansion Phase: Rising Prices and Demand
The expansion market cycle arrives with strong job growth and lower unemployment. Home prices are likely to be higher and rents are increasing. We find a lot of new construction activity, and consumer confidence is high. People are spending money and there’s a growing demand for high-quality rental homes. Those qualified tenants you’re trying to attract are willing to pay a little bit more for a renovated, modern home.
This is typically the most favorable time for local and out-of-state investors to buy in Florida. Renters are plentiful, and cash flow tends to improve. Appreciation is impressive, and financing is more accessible. During expansion, it’s important to act early before prices hit their peak and competition starts to grow.
Our recommendation? This is a good time to lock in fixed-rate financing and build a portfolio in Class B and Class C properties, where cash flow remains strong.
Hyper Supply Phase: Shifting Inventory
Inventory grows as builders try to meet demand during the hyper-supply phase, but that can lead to more rental properties than there are tenants willing to move into them. Investors will typically find that vacancy rates are rising and rent growth slows. Sometimes, price appreciation begins to plateau and there’s a sense that our local markets are experiencing more building than is necessary.
During this phase, caution is key. If you already own rental properties, it could be a good time to refinance, increase reserves, and reduce leverage. Avoid overpaying for new acquisitions, which is always a risk during this type of market cycle. Value-add strategies and creative financing can still deliver solid returns, but thorough due diligence is going to protect you against common mistakes.
Recession Phase: Stay Steady and Strategic
When the dreaded recession phase arrives, property values and rents decline and vacancy rates tend to soar. There can be a bit of negativity in your investment circles, but remember that everything is temporary. There may be foreclosures and you might find a market full of distressed properties for sale. Lending can be more difficult, but smart investors know that they are building wealth for the next cycle. You’re in an especially strong position if you have a lot of cash available to you.
When you’re financially prepared, this is the time to acquire properties at a discount, often from motivated sellers or bank-owned inventory. Be conservative in your rent projections, and focus on properties that can cash flow even under depressed conditions. Our markets in Florida tend to bounce back fast, so don’t be afraid to think big. Recessions are prime times to buy in prime locations that would otherwise be too expensive in an up market.
How to Identify an Existing Market Cycle
While market cycles tend to impact the entire country, Florida is full of unique and nuanced markets. Our major job growth, surging population, and balance of short-term vacation rentals and long-term leases set us apart. We gain an average of 800 new residents per day, for example. Investors in Florida still need to be mindful of market cycles, but remember that local data will be far more meaningful than national trends.
It’s Always the Right Time to Invest in Central Florida
Understanding market cycles isn’t about timing the market perfectly. That will drive you crazy. Watching market cycles gives investors an opportunity to recognize patterns, manage risk, and adjust their approach.
Every phase of the real estate cycle offers opportunities if you know how to capitalize on them. Whether the Florida market is rising, correcting, or rebounding, smart investors are always active. You simply have to know when to change tactics.
Questions about market cycles and how they might impact your specific investment goals? Let’s talk about it. Please do not hesitate to contact us at Park Avenue Property Management. We provide exceptional leasing, management, and maintenance expertise in Celebration, Orlando, Lake Buena Vista, Kissimmee, Maitland, Altamonte Springs, West Palm Beach, Tampa Bay, and throughout Central Florida.
