By Learning to Identify Emerging Markets
“Many investors make the mistake of investing in hot areas. These are the places you read about in popular magazines. Everyone is talking about them because they’ve performed great for several years”. – David Lindahl
While soaking up the sun on the beaches of Ambergris Caye in Belize this month, I picked up “Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas” by David Lindahl. I have to admit that I struggled a bit with his attitude (especially towards “burnt out landlords”), but if you are interested in Apartment investing, it’s a really good read.
Lessons in the Market Cycle and Investing in Emerging Markets from David Lindahl
Even in times where most markets are crashing, you’ll find a market that is just about to explode. Maybe that market is on the other side of the country, or maybe it’s just a small neighbourhood within the city you live in, but either way there are opportunities out there. You just have to find them.
Lindahl splits the market cycle into four phases:
- Buyer’s Market Phase 1: A market that is oversupplied with properties
- Buyer’s Market Phase 2: The market starts to absorb the oversupply, vacant units become occupied and abandoned properties get purchased.
- Seller’s Market Phase 1: Demand has reached it’s highest point. There are plenty of investors that want to buy what you are selling.
- Seller’s Market Phase 2: Job growth slows, properties take longer to sell, and the market is slowly getting oversupplied by new developments.
The ideal situation is to get in during Buyer’s Market Phase 1 with very little money of your own. Enjoy cash flow from that property as you ride into Phase 2, and then the early stages of Seller’s Market Phase 1. Then you sell, and find a new market that is in Buyer’s Market Phase 1. Simple concept – so how does he suggest you find the next emerging market?
Well, an emerging real estate market is one that has people moving into it, rather than packing up and moving out. It’s also an area where there is job creation. An interesting point he makes repeatedly in his book is that an emerging market has great leaders. “It takes aggressive and thoughtful leaders to analyze a city and determine what needs to be done. They then need to have the courage and strength to implement their vision in order to help the city achieve greatness” p.26. Learn about the leaders in a city, review the Master Plan, and check out the local news to find out what companies are coming to town.
Published February 25, 2008