Investing in real estate can be a lucrative endeavor, but it’s important to understand the market cycles and how to make money in each stage. There are typically four stages of the market cycle: recovery, expansion, hyper-supply, and recession. In this blog post, we will explore each of these stages and discuss how to make money with multifamily investments.
- Recovery Stage: (Optimism)
The recovery stage is the first stage of the market cycle. This stage is characterized by low vacancy rates, rising rents, and increased demand for real estate. Investors can make money in this stage by buying properties at a discount, renovating them, and increasing the rent. Additionally, investing in areas with strong job growth and population growth can provide significant returns at this stage.
In the multi-family sector, investing in properties with strong rental demand and high occupancy rates can be profitable. Investors can also consider purchasing distressed properties at a discount and renovating them to increase their value, for a value add investment.
- Expansion Stage: (Complacency)
The expansion stage is the second stage of the market cycle. This stage is characterized by increasing property values, rising rents, and low vacancy rates. Investors can make money in this stage by purchasing properties with strong rental demand and high occupancy rates. Additionally, investing in emerging markets with growing demand for rental housing can provide significant returns.
In the multi-family sector, investors can consider purchasing properties with long-term leases and stable cash flows. Additionally, investing in areas with a shortage of rental housing can provide significant returns at this stage.
- Hyper Supply Stage: (Depression)
The hyper-supply stage is the third stage of the market cycle. This stage is characterized by an oversupply of real estate, increasing vacancies, and decreasing rents. Investors can make money in this stage by being patient and waiting for the market to stabilize. Additionally, investing in areas with strong job growth and population growth can provide significant returns in the long run which is why Viking Capital continues to focus on metro areas with strong population and job growth.
In the multi-family sector, investors can consider purchasing distressed properties at a discount and renovating them to increase their value. Additionally, investing in emerging markets with growing demand for rental housing can provide significant returns in the long run.
- Recession Stage: (Hope)
The recession stage is the fourth and final stage of the market cycle. This stage is characterized by a decrease in property values, increased inflation, increased interest rates, stock market decreases.
In the multifamily sector, this stage of the market cycle is ripe with opportunity. Investors can consider purchasing distressed properties at a discount and renovating them to increase their value. Additionally, investing in areas with strong job growth and population growth can provide significant returns in the long run. While a recession is always a concerning economic trend, multifamily syndication, and multifamily investments tend to be recession-proof as they offer liveable spaces for many people, and often this is when we see the greatest occupancy in our class B properties.
Understanding the four stages of the market cycle and how to make money in each stage is critical to successful real estate investing. In the multi-family sector, investors can make money by purchasing properties with strong rental demand, investing in emerging markets with growing demand for rental housing, and purchasing distressed properties at a discount and renovating them to increase their value. Multifamily apartment buildings are generally less impacted by economic cycles as people always require a place to live. Despite significant job losses in certain markets during a downturn, multifamily investments can still be successful across all market phases if investors understand the advantages and disadvantages of each phase.
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*This article was updated with new content 4/22/2025.
