What Phase of the Real Estate Cycle Are You Investing In?

By Published On: July 21, 20218 min read

To get the best deal, you want to “buy low and sell high” which means you want to hop in when market prices are at the lowest. Then you want to sell at the height of the buying frenzy to profit big.

The name of the game is figuring out the precise moment when to jump in to get the deals. You also want to figure out when to jump out before the market cools and your chance to make it big dissipates.

Economist Homer Hoyt studied the Chicago and broader U.S. real estate markets since 1800 and found the real estate cycle follows a steady 18-year rhythm that’s as predictable as the seasons. You get the Winter (the slump), the Summer (the boom) and Spring and Fall, in between.

Here’s the breakdown:

What Is the Real Estate Cycle?

All investment niches iterate the same phenomena: the growing period that gradually blazes into a storm of demand before losing its gas and sputtering into nothingness. More especially, investment business cycles go through four stages called:

  1. Bottom of the market
  2. Recovery
  3. Boom
  4. Slump

Each cycle has its own identifiers and business strategies.

The Four Phases of the Real Estate Cycle

Typically, you’ll see around three years of solid growth followed by eight years of moderate growth. How can you tell which stage the market is at, and what are your best practices in each stage?

Here’s a quick overview:

1. Bottom of the Market

Cap rates are strong at 5.5% plus. Confidence in the real estate market is low. The vacancy rates are likewise low. There’s not much new construction. Because there’s small confidence, you’ve got meager competition. It’s the best time to buy, but the hardest time to convince real estate investors to go in.


  • Slight, almost indiscernible increase in rental and property sales
  • small, indiscernible rise in construction
  • interest rates hold steady or decline from rate cuts
  • people are beginning to crawl out of a crisis-induced panic, depression, recession or fear

Investment Strategies:

  • buying equity
  • private lending
  • hard money lending

2. Recovery Phase

The real estate market’s shifting, prices start to rise, rental returns start to flatten out to about 5% and more buyers enter the market. The recovery phase is the second-best time to invest.


  • Home sales and leasing are on their upswing — prices are too
  • there’s a balanced or high demand of housing (meaning no housing bubble)
  • a building boom in the area (or just beginning)
  • single-family homes being flipped
  • interest rate rises
  • GDP grows to “healthy” levels, around 2% – 3%
  • the public has crawled out of their crisis and is optimistic, even excited.

Investment strategies:

  • flipping
  • wholesaling
  • buy-and-hold
  • multifamily
  • private lending
  • hard money lending

3. Boom, Expansion Phase, or Hyper Supply

During the expansion phase, rental vacancies hop back to their acceptable 5-8% range. The property market is high. There’s hyped confidence levels and lots of new construction.

The expansion phase sees investors working with developers in a mania to make sure supply meets the booming demand for real estate. Also called “hyper supply,” this is an extraordinarily busy phase in the real estate cycle.

You’ll want to sell at the peak of this market when prices hit their highest point. Last-minute buyers are crawling into the market. There’s media hype with more buyers than sellers, and everyone from your uncle to his 4th-cousin-down-the-line jumps on the real estate wagon. Rental yields are less than 5%. There’s a bubble with people afraid of losing out. This phase is your last chance to buy.


  • Home prices are on their way down (pushed by oversupply)
  • rental rates remain high but demand for rental decreases
  • GDP, job growth and interest rates remain stable
  • emotions are hyper-inflated, reflecting the market

Investment strategies:

4. Slump

This phase sees more sellers than buyers. You’ll find high prices and few people buying. There’s a stock oversupply and falling construction prices. This period of recession could last as long as eight years, giving the real estate market time to recover while salaries and rentals increase. Recovery is slow, building back to your 5-6% rental opportunity. This is the worst phase of the real estate market cycle to buy in.


  • Unemployment and debt default hits the roof
  • depression mounts, as does homelessness and the bad news — it’s a period of crisis
  • spending halts — you may see a shift to debit to avert credit card debt
  • housing prices and rental rates decrease as sellers scrounge for buyers

Investment strategies:

How to Figure Out When to Jump In

There are various rising and falling markets across property niche, location and users. Rather than see it as one market, ask yourself these three questions:

  • What’s my area? Real estate prices vary considerably in San Francisco, CA, than they do in Richmond, VA.
  • What’s my asset? Single-family homes, apartments, office buildings, hotels? Each has its own cycle.
  • Who’s my buyer? Family, private equity firm, corporation?

Gino Barbaro of BiggerPockets suggested you ask yourself these three questions:

  • Where is it strong?
  • For whom is it strong?
  • For what kind of real estate is it strong?

What’s your niche, location, user? Plan accordingly.

Narrowing in on your market is the most important strategy for planning when to enter the game. There’s more below on how to time your risks and help you make the right market choice.

5 Factors When Considering Real Estate Market Cycles

It’s a game — rather expensive at that — that all comes down to timing. Throw your money in the ring at the right time, and you could profit enough to retire rich. That’s as long as you sell your investments at the right time, too!

These tips could help you.

1. Check the Niche

Compulsive real estate aficionado Max Heisler noticed that property niches have their cycles, too. Residential and commercial properties each wax and wane at different times. Residential could be divided into low end to high-end properties, each of which has its own timing.

Specify your market, follow its trajectory and hop in at its peak.

The residential sector is usually the first and fastest to rise from a downturn, followed by multi-family and condos. Condominiums have their biggest tops and bottoms.

2. Where Do I Look?

Want to know which markets to select? Target those areas with:

  • Population or household growth — Household growth is a better barometer since these are your clients.
  • Large shares of Millennials or Baby Boomers — These age groups are more apt to buy the homes.
  • Low crime rates — You’d be surprised how many people forget to take crime into account when they look for deals, according to Ky Trang Ho of Key Financial Media.

Ralph DiBugnara, president of Home Qualified, suggested you consider emerging neighborhoods because these “maximize profits as they “offer growth potential and tax incentives for buyers’.’ According to Don Wede, president of Heartland Funding, single-family homes are your safest niche, since they’ve consistently appreciated over the last 100 years.

3. When Do I Jump In?

Want to know when to jump into that particular market?

  • Look at job growth, which should pivot around 2% for two consecutive years. Use the Bureau of Labor Statistics for your research or google the name of the city and “job growth”
  • Check stock markets. They reflect earnings expectations six to 24 months in advance.
  • Refer to past property cycles of the market you want to buy into before buying. Use this information as your guide. Better still, research various past cycles. See if you can identify a pattern.
  • Look at the sectors that predominate in your state. For example: Tech and banks surge to the top in SF and NY, respectively. How are those industries doing?

4. Diversify Your Investments

Spread your investments across the best cities, states and countries. Don’t just look in LA but also check out Riyadh, Saudi Arabia, for example. Keep your mind hooked on various cycles so you protect your portfolio against those unpredictable bottoming markets.

Worried about how to manage your different investments? Property Tracker is one of various apps that could help you.

5. Know Your Market

Inform yourself on current trends, including decreases or increases in average rent, income, interest rates and unemployment rates. Important, too: Know the tax laws (you don’t want to fall afoul of regulations). Being able to stay ahead of the market can help you determine which market/s to invest in and which to avoid. It can also save you from sticking around in a plunging market.

6. Set a Budget

Those heady deals may be seductive. Less known to you are the invisible heap of repairs, likely flipping the deal into a nightmare. Set yourself a budget. Add 50% more funds for reserves.

Is There Software That Helps Predict Real Estate Cycles?

Argus and The Analyst Pro are the most relevant.

  • Argus helps you choose the correct cycle (and markets) by predicting the trends of your chosen market.
  • The Analyst Pro helps you with location risk analysis. It’s best for commercial investors.

As helpful as these proprietary tools are, don’t rely only on them. Use your own intuition, common sense and research.

How Will You Enter the Cycle?

Just like our yearly seasons, you want to dig for those deals in winter when people typically hibernate and sell in the boom of summer. Periods in the real estate cycle are less predictable, but they still have consistent identifiers. Watch them closely, hedge your risks and jump in when you’re ready.

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