How to Score a Real Estate Deal in Any Market

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*Our article has also been published at Forbes.com: Link

With most things in life, the best advice someone can give is to take a step back and look at the bigger picture. But when you’re evaluating real estate markets for investment, I’ve found that you have to get into the nitty gritty details.

By extrapolating assumptions from your local market to another, for example, you’re at risk of oversimplifying the playing field and overlooking potential deals that can either generate substantial cash flow or long-term appreciation. Think about it like the weather. Just because it’s a balmy day in Los Angeles doesn’t mean that there can’t be snow in New York at the same time. And even more granularly, there are submarkets within markets -- just like how - in California - it can be 100 degrees in Concord when only 25 miles away, it’s 54 degrees in San Francisco.

Knowing real estate markets intimately and being able to correctly identify the phase each market is currently in, is the key to recognizing what is a good investment vs. what to pass on.

The Basics

There are 4 phases in the cycle of real estate, and they look like this:

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Phase I: Recovery

Recovery is typically the most difficult phase to identify – when a real estate market is recovering from a recession, demand can still be slow. Rental growth can seem flat and new builds are few and far between, so a lot of the time, the market can still look like it is in a slump. However, to those closely monitoring the data, upward trends in property viewings, the reduced pace of previous decline, or a break in the downward trend, are all signs that the market is coming out of the downturn.

During recovery, value-add properties with some need for renovation require careful evaluation but can present an opportunity to acquire, improve, and then resell the asset for strong returns during the upcoming expansion phase. This would also be the time to snap up core assets in a prime location and then ride the market up to expansion.

Phase II: Expansion

Markets in expansion are transitioning up and are faced with growing demand. The economy and job growth in these markets will look strong; rents are on the rise and vacancy is low. New construction jobs are plentiful, and at the height of this phase, supply and demand reach equilibrium. During this phase, developers can capitalize on higher demand and investors not keen on shouldering too much risk can pursue core plus strategies knowing that turnover is likely to be lower and rents are rising.

This is also a prime time to deploy value-add tactics. Investors and funds who know what they are looking for can secure neglected properties that require TLC or are mismanaged, at a discounted price, then bring these assets into full productivity before reselling for considerable profit.

Phase III: Hypersupply

Hypersupply occurs when an economy shifts into decline or new developments continue in parallel with falling demand. Both cause occupancy rates to fall and rental growth to slow. During this phase, savvy investors look for solid assets with stable tenants and long-term leases already in place. Even though no one can predict when the next expansion phase will come about, these fixed-term assets ensure a level of high performance until the next lease roll, providing stability when recession hits. Similarly, investors who can keep an even keel can take advantage of prime real estate divestitures from panicking sellers.

Phase IV: Recession

When the players in a market either don’t recognize the downturn, or choose to disregard the warning signs of waning demand, the hypersupply phase falls into the recession phase. Recession is distinguishable by its heavy supply, high vacancy rates, and reductions in rent. In this highly saturated market, investors willing to take on higher risk can acquire distressed bank-owned properties, vacant land developments, tear-downs, and construction projects at bargain prices compared to replacement cost. This is a long-term play for the patient investor willing to work to stabilize the asset and hold until the cycle moves back through the recovery phase.  Investors must be very choosy, or risk getting cut as they catch a falling knife.

Final Takeaway

What’s important to remember is that different markets can be in different phases simultaneously.  So a strategy that works in the Hypersupply phase in San Francisco will be less effective in an Expansion phase in Dallas. 

Additionally, no one can predict how long each phase will last. Even if we take into account historical data, we can’t count on the same highs and the same lows, because the economy and is an ever-evolving playing field. Furthermore, since cycles can vary depending on geography and property type, the key is to be vigilant and to understand the nuances of each market and the best strategy to implement in each given situation. In doing so, you can build a diversified real estate investment portfolio robust enough to weather any storm.

Warm Regards,

Kimberly Yeh
Managing Director - Real Estate Acquisitions

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

BENA Capital Announces Multifamily Acquisition in Fort Worth, TX

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BENA Capital is pleased to announce its latest acquisition of a multi-family apartment asset in Fort Worth, Texas.

The Dallas/Fort Worth market is strong and growing.  It is the fastest growing metropolitan area in the country, adding over 146,000 residents in 2017.  Fort Worth is the 15th largest city in the United States and continues to grow substantially, both in numbers of residents and jobs.  Over the past 12 months it has added jobs at twice the rate of the national average.  Cities with this type of robust growth are rare, and an effective strategy to capitalize on this growth is to acquire solid properties in transition areas just on the fringe of this rapid growth.  These types of properties tend to benefit from price appreciation as the population searches for additional housing units.
 
The property is in one of these transition zones, located in the Hillside Morningside neighborhood, just southeast of downtown Fort Worth.  Already an established neighborhood, old homes are being taken down and being replaced with new construction.  Less than 10 minutes away, a much-anticipated boutique hotel set to open next year will create 160 full-time jobs and have an annual economic impact of about $25 million. Only 5 minutes away, a $30 million luxury mixed-use complex is being built along with $8.6 million in infrastructure improvements.
 
The acquisition is the second of BENA Capital’s Balanced Investing Fund, focused on a balance between quarterly dividends and asset value appreciation.  We are excited about the prospects of this property due to its location.  It is currently vacant and will require some rehab work, which is scheduled for completion over the next 14 days.  Once leased it should be a healthy contributor to the fund.

If you are interested in learning about our upcoming funds and investment opportunities, feel free to reach out directly.

Warm Regards,

Kimberly Yeh
Managing Director - Real Estate Acquisitions

 

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

Press Release: BENA Capital Joins Forbes Real Estate Council

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SAN RAMON, CA – BENA Capital, a private real estate investment firm, has been selected to join the Forbes Real Estate Council, an invitation-only community comprised of leaders in the real estate industry.

Scott Gerber, founder of Forbes Councils, says, “We are honored to welcome BENA Capital into the community. Our mission with Forbes Councils is to curate successful professionals from every industry, creating a vetted, social capital-driven network that helps every member make an even greater impact on the business world.”

Since 2014, BENA Capital has successfully generated competitive returns for its investors through debt-free real estate investments. The company manages real estate funds with a diverse portfolio of multi-family residential, single-family residential, and condominium properties nationwide. BENA Capital exercises a rigorous due diligence process to acquire undervalued or under-performing properties in strategic locations and partners only with best-in-class management teams to bring these assets into full productivity.  As a result, the firm has driven transformational outcomes to maximize portfolio value and deliver the best results for investors.

BENA Capital's acceptance into the Forbes Real Estate Council aligns with the company's commitment to provide valuable thought leadership in the real estate sector. Today, BENA Capital's newsletters deliver strategic direction and market insights to investors, and as part of the Forbes Real Estate Council, BENA Capital will continue to bring industry expertise and practical experience to a broader national audience.

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide a simple way to invest, reliable quarterly cash flow, and portfolio diversification. The firm's proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

3 Common Mistakes in Real Estate Investing, and How to Avoid Them

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A good private real estate manager should be performing the proper due diligence to protect and grow your investment. Read BENA Capital's quick tips below on how to avoid falling victim to 3 common mistakes in real estate investing.

1. Substituting Technology for Niche Market Knowledge

We have all heard this age old adage when it comes to real estate: “Location, location, location.” In an era where technology rules the world – where you can virtually stroll through the neighborhood using Google street view and where Yelp provides additional transparency on proximity to local amenities – it can be tempting to make real estate decisions based solely on the information available on the internet. But while technology is a useful tool for a preliminary assessment, it is no match for niche market knowledge from those who live and breathe the local real estate market every single day.

That's why it's important to have strong relationships with:

  • Brokers – the best brokers will send you hot listings with your criteria in mind prior to them hitting the market. They will know up and coming areas in major transition where you can capitalize on the growth and capture the appreciation.
  • Property managers – dependable property managers will understand your tenant base, won't need hand holding, and can come up with innovative solutions that align with your investment strategy, save you money, while keeping tenants happy.
  • Contractors – most people forget that good contractors are worth their weight in gold. Bad contractors make false promises and cause you delays (which can waste valuable time and cost you thousands of dollars in lost rental income).

2. Trusting Numbers as Advertised Without Doing the Math

Whether you are trying to figure out the best financing strategy for you, property valuation, or the asset's return on investment (ROI), you should always run the numbers independently of what has been advertised. With listings touting high rental incomes, cap rates, and cash on cash returns, some make the mistake of taking those numbers at face value without understanding the assumptions behind them. For example, does that 11% cap rate include pro forma rental income numbers much higher than what's achievable in the local market? How long will your rental have to sit vacant for to get to the rental income advertised? What routine expenses and maintenance are being included or omitted? When do the current leases end, or are tenants renting month to month? Are the comps provided in the same vicinity of the subject property, or are they too far away to be relevant? While most brokers will not blatantly lie when asked those questions, they will rarely offer such information voluntarily.

3. Letting Emotions Drive Decisions


Investments are like businesses and should be treated as such. You need to determine the short term and long term goals that work for you, your investment criteria, your exit strategy, and the level of risk you are willing to accept. Without this solid foundation, your resolve can waiver during the course of a stressful real estate transaction, and your decisions could come back to haunt you. When you’ve invested time and effort to close a deal, it can be tempting to move forward even in the face of red flags – whether that be in the form of a bad inspection report or not being able to find a trustworthy property manager – knowing your risk threshold and when the pass on a transaction is important. On the other hand, many of the best investments are not turnkey. Knowing how to evaluate cost vs. benefit, risk vs. reward, is crucial. In each case, keep your original set of criteria and goals in mind instead of letting emotions cloud your judgement.

We all have that one friend who boasts about their real estate success in XYZ city every chance they get, or the one that laments buying property in the same XYZ city when everyone else did. Don't jump into investing in real estate without understanding the level of commitment needed to make your investments successful, and don't make hasty decisions based on one case study. One single point of data does not make a trend line. It's not easy, but with the right planning, mindset, and focus, real estate can be a strong component of an investment portfolio.

 

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide a simple way to invest, reliable quarterly cash flow, and portfolio diversification. The firm's proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

BENA Capital Announces Multifamily Acquisition in Hartford, CT

BENA Capital is pleased to announce its latest acquisition of a multi-family apartment asset in Hartford, Connecticut. The property is located in West Hartford, less than 5 minutes to the State Capitol building downtown and within 10 minutes from 9 of the top 25 largest employers in the State of Connecticut – including Aetna, Pratt & Whitney, and Hartford Hospital. In addition, IT consulting firm Infosys recently announced that it will hire 1,000 employees in Hartford and establish a $21 million Technology & Innovation Center to further advance insurance and health care-centric technologies. The property, which was previously owner-managed with below-market rents is poised to benefit from its central location and new economic investments propelling growth in the city.

Yousif Abudra, Managing Director said, “BENA Capital’s all-cash, debt-free offer, paired with niche market knowledge from strategic partnerships enabled a quick close, and helped us successfully compete against 10 other potential investors.
In spite of the competition, the competitive advantage of the all-cash fund and attractive terms allowed us to acquire the asset at 12% below asking price.”

Value-Add Strategy

BENA Capital plans to implement an aggressive phased strategy to improve the property in Q2 2018. Initially, targeted value-add projects and repairs will be undertaken to improve the appeal of the property. In parallel, the hands-on property management team is familiar with the local market, and will increase current rents to enhance cash flow. Finally, the owners of the adjacent property are already in the process of rehabbing both the interior and exterior as well, which will further enhance curb appeal and improve future value.

The acquisition is the first of BENA Capital’s newest fund, the Balanced Investing Fund, focused on a balance between quarterly dividends and asset value appreciation. Two additional transactions are also in progress at this time, and are currently in the due diligence phase. These will round out the portfolio with cash-flowing properties in growing locations, which will provide our investors with geographic diversification, rich quarterly dividends, and strong appreciation potential.

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

BENA Capital Announces Sale of Merced Investment

BENA Capital LLC, a real estate investment fund manager, has completed the sale of its multifamily residential property in Merced, CA.  “This was a home run for our investors as we delivered returns that significantly exceeded projections,” said Managing Director Yousif Abudra.

 

Value-Add Approach

BENA Capital took a value-add approach and implemented a phased renovation strategy to increase the occupancy rate of the property from 20% to 100% within 8 weeks of purchase.  Once fully occupied, the property produced cash flow returns to investors that were 38% higher than originally projected.

Managing Director of Acquisitions, Kimberly Yeh selected the Merced asset based upon its location and value-add potential, saying “We identified the Merced asset in January 2016 as an attractive acquisition opportunity due to the property’s strong value-add potential and the region’s notable growth trends.  Located within 15 minutes of the UC Merced campus, and less than a mile from the new $46MM UC Merced Downtown Center, the property was poised to benefit from the prime location coupled with a value-add approach.”

 

Strong Investment Return

Yousif Abudra said, “The team came together to produce a strong result for our investors.  Our contractor began work immediately after acquisition, and delivered the project on time and on budget.  Meanwhile, our property management team hit the ground running to bring the occupancy up to capacity.  Due to both of their efforts, we were able to not only achieve 100% occupancy, but do so at above-market rents.”

The property sold to a local investor looking for a turn-key, stabilized investment. 

“We were able to sell at a premium because we delivered what the market was looking for – a stable, cash-flowing asset.  The Merced property shows the true power of implementing our value-add strategy.  Our investors achieved a stunning IRR (Internal Rate of Return) in 20 months – without utilizing any debt,” Abudra concluded.

 

About BENA Capital:

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

To learn more about BENA Capital, visit: http://www.bena-capital.com/

Fall 2017 Update & New Markets to Watch

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With summer having come to a close, we want to take a moment to wish our investors a happy fall and to share a few noteworthy developments in the latter half of 2017.

Acquisition Updates

Earlier this quarter, BENA Capital, LLC announced the successful acquisition of another multi-family residential property in Abilene, TX.

We identified the Abilene asset as an attractive acquisition opportunity due to the property’s robust value-add potential and the region’s strong growth trends. Located less than ¼ mile from Abilene Christian University and two hours west of the Dallas/Fort Worth Metroplex – the property was brought to us by our broker in the area who knows we are an all-cash buyer.  It is expected to provide 6% annual cash flow and return 50-55% within four years.  Over the past three months, extensive value-add improvements have been made to the property.  As those improvements come to completion, units have started to lease, with 48 prospective tenants interested in the three units remaining.

New Markets to Watch

With Tier I Markets peaking, we will continue to focus on Tier II and Tier III markets with resilient economies buoyed by employers and universities. We have set up strategic partnerships with a network of real estate brokers in a number of new markets where jobs and renter populations are growing.

Rising home prices and mortgage rates continue to make home-buying less affordable and renting more attractive. This results in stable cash flows and long-term capital appreciation potential for investors who have the ability to leverage zero-debt investment models, such as the one BENA Capital offers, to tap into the multi-family niche.

Here are a few new markets on our watch list:

Fort Worth, Texas

Home to more than 7 million people and growing, the Dallas/Fort-Worth area has added an average of ~100,000 jobs/year since 2010. Local leaders have made attracting large employers a high priority, and major corporations such as AT&T, American Airlines, and Lockheed Martin call the metroplex home. With the University of Texas at Arlington, Texas Christian University, and the University of North Texas also located in the region, there is no shortage of well-educated millennials eager to stay after graduation.

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Raleigh, North Carolina

The metro area surrounding Raleigh, NC has been one of the fastest growing in the country. Since 2010, the city’s population has increased ~15%. USA Today recently named Raleigh the third best place in the U.S. for business and careers, most notably in the technology and life sciences sectors. Nearby tier one universities with deep talent pools include NC State University, the University of North Carolina at Chapel Hill, and Duke University.  They provide a solid foundation that continues to fuel innovation and prosperity in the region. Additionally, Red Hat (headquartered in Raleigh) and Citrix are both major employers in the area. Technology giants like these, along with Research Triangle Park (which includes neighboring anchor cities Durham and Chapel Hill), have been catalysts in the area’s continued revitalization and economic growth.

Chattanooga, Tennessee

Chattanooga proudly touts its “Gig City" badge. When the city built the fastest internet in the U.S., it attracted new businesses to the region. According to an independent study conducted by the University of Tennessee in 2015, this helped add roughly $865M to the local economy since 2010. With its 140-acre downtown “Innovation District” anchored by the Edney Innovation Center and its budding start-up scene, Chattanooga is reshaping itself as a technology solutions hub.


Invest Wisely,

Yousif


Yousif Abudra is Managing Director - Real Estate Investments at BENA Capital. 

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

To learn more about BENA Capital, visit: http://www.bena-capital.com/

Click for Investor Overview PDF: BENA Capital - Overview

Yousif Abudra & BENA Capital Featured in Interview with Joe Fairless

Yesterday, Yousif Abudra was featured as the guest speaker on the "Best Real Estate Investing Advice Ever" show with Joe Fairless -- the top-ranked investing podcast on iTunes with over 1,600,000 downloads.

The interview is already ranked in the Top 5 most popular (out of over 880+) shows on iTunes. Listen in for real estate investing tips and to find out more about BENA Capital’s unique approach to debt-free real estate investing. 

Below is the audio podcast:

Yousif Abudra is Managing Director - Real Estate Investments at BENA Capital. 

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily properties in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital - Overview

BENA Capital Annual Letter 2017

We received great feedback from last year's 2016 predictions for the real estate market - which you can read here - and are happy to share our thoughts for 2017.

Continuing on the strength of 2016's performance, 2017 will bring some changes and require a skilled approach to selecting the right investments.  Three notable trends are:

1) Slowing Tier I Markets and The Rise of the Midwest

Prices in Tier I markets, such as San Francisco and New York - that saw sharp increases in 2013-2015 - will continue to soften in 2017.  This continues the trend from 2016, as prices reach levels that stretch incomes, rising interest rates eat away at purchasing power, and development projects add supply.

While Tier I markets slow, it is the smaller, more affordable Tier II and Tier III markets that present select opportunities for cash flow and continued price appreciation.  As an example, there are still niche Midwestern cities that are poised to benefit from population inflows and job creation.  These select markets are areas BENA Capital will continue to pursue in 2017.

Takeaway for 2017:  Expect prices to continue to slow or fall slightly in Tier I, Class A markets.  Tier II and Tier III markets such as Midwestern cities with enticing job incentives continue to expand.  Leading the pack are Madison, WI; Columbus, OH; Omaha, NE; Des Moines, IA; Greensboro, NC; and Akron, OH.

2) Increasing Interest Rates

While BENA Capital does not use debt in our investments, we still pay close attention to interest rates and the impacts to buyer purchasing power.  The seven-year stretch of historically low mortgage rates is coming to an end, beginning in 2017.  Mortgage rates have already jumped by half-a-percentage point since late October.  With the recent December Fed rate increase and promises of additional increases in 2017, mortgage rates will continue to climb.  The effect on real estate will be two-fold:

a) Pressure on Prices

Higher mortgage rates will exert pressure on asset prices.  Tier I markets will experience flattening and even falling prices while Tier II and Tier III markets with strong fundamentals have the potential to continue to appreciate despite the higher rates.  Tier II and Tier III markets without sound fundamentals will be the hardest hit and will see falling prices;

b) More Selective Buyers

Individual buyers who have been on the fence will face more expensive mortgages and either buy smaller homes or continue renting.  Institutional buyers will only purchase properties where there is growth potential.

Takeaway for 2017: Expect to see continued high asking prices from sellers, but fewer sales close at those prices.  The bidding wars are largely done as buyers now have an interest rate headwind.  Additionally, expect the number of sales to decrease from previous years as buyers take a more cautious approach.  2017 will be a transition year as certain markets begin to peak, while others continue to experience opportunistic growth.

3) Millennial Renters

Millennials will face challenges as buyers in 2017, as stagnant incomes, lower credit scores, higher debt levels, and rising mortgage rates limit their purchasing power.  Additionally, they have strong preferences to skip the starter home and go straight to the move-up property.  As a result, many Millennials will find this dream unaffordable.  They will be forced to continue renting for the foreseeable future, further supporting multifamily rental investments.

While they rent, Millennials prefer urban and "surban" (suburban with urban amenities) locations.  These cater to Millennial live-work preferences and quality of life choices.  BENA Capital is focusing on these areas of growth that have strong renter populations, resilient economies buoyed by employers and universities.  Prospects include Spokane, WA; Austin, TX; Merced, CA; and St. George, UT.  As an example, BENA Capital's 2016 multifamily investment in the university town of Merced, CA has taken full advantage of the city's growing population, jobs, and student enrollment - earning investors robust quarterly dividends.

Takeaway for 2017: Millennials have the desire to purchase homes, but not the means to do so, leading to continued high levels of renting, particularly in urban-like settings with good job growth.  Expect this trend to continue to support multifamily investments for the foreseeable future.

Overall

Real estate for 2017 will be heavily influenced by the economy, monetary policy, and demographic changes.  Selecting and executing on successful investments will be harder than it has been in years.  However, opportunities are present for the watchful.  Niche market knowledge and the ability to move quickly will be crucial to securing attractive opportunities.

In 2017, BENA Capital will remain highly selective in the properties and geographies that we pursue.  Our investments will continue to focus on cash-flowing, value-add multifamily properties in growing locations which provide our investors with rich quarterly dividends and strong appreciation potential.

Invest Wisely,

Yousif

Yousif Abudra is Managing Director - Real Estate Investments at BENA Capital.  BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital - Overview

 

 

Timing the Real Estate Market: 5 Phases in the Cycle

October 11, 2016 – A majority of real estate observers tend to see markets in one of two states: climbing or falling.  In fact, this is not unique to real estate, but is a common trait seen with investors in stocks and commodities as well.  However this view naturally leads people to invest at market tops and sell at market bottoms (sound familiar?). 

There are actually 5 Phases in the Real Estate Cycle:

  1. Cycle Bottom / Early Recovery
  2. Expansion
  3. Exuberance
  4. Contraction / Early Downturn
  5. Full Downturn / Recession

Take a look at the chart below, which shows the 5 Phases along with where certain US cities fall along the cycle as of September 2016:

5 Phases in the Real Estate Cycle

Each phase may last a few months to a few years, depending on the market.  What's more, each phase rewards very different investment strategies.  And local markets can be in different phases at the same time.  If you happen to live in the SF Bay Area for example, the daily noise from the real estate market would lead you to believe that all real estate is on fire.  But if you happen to live in Houston, your perception is likely quite the opposite. 

As an example, in 2009-10 the SF Bay Area market was in Phase 5: Full Downturn / Recession while the Austin market was in Phase 2: Expansion.  Today, you can see that both are currently in Phase 3: Exuberance. 

What happened? 

The SF Bay Area moved through Phase 5 -> Phase 1 -> Phase 2 -> Phase 3 in just 4 years.  Austin took the same amount of time to move from Phase 2 -> Phase 3.  Each market is different, and requires a knowledge of which phase that market is in and what factors are driving it from one phase to the next.

It is important to note that although each market goes through the five phases, the degree to which prices will swing also varies by market.  That is to say, do not expect to see the wild price swings of a coastal city such as a New York or San Francisco in more stable areas such as a St. Louis or Cleveland.  To limit downside risk, buy in markets that are currently in Phases 1 and 2, and sell in Phases 3 and 4.  If a market is currently in Phase 5, wait it out.

To learn more about BENA Capital, visit: http://www.bena-capital.com/