Have you ever come across someone working in the Real Estate Investment Business who just has the “gift”? They never fail to make a move, they land all the best deals and are in the best markets at the right time. There is a certain aura around these individuals that we are familiar with and that’s exactly the goal we investors strive for. It’s the confidence we want to achieve one day in all that we do. There’s a secret behind these investors that I need to be able to share. The way they create this image is by education! Unwavering dedication to learning in their field of expertise. Two important aspects of education which real estate professionals require to master is the ability to analyze markets and comprehend the real market cycles in real estate. If you have an understanding of and education through both the theoretical and practical understanding of these two areas, you’ll be able to figure out wherever the pucks headed.
What Is the Real Estate Market?
Breaking News “THE REAL ESTATE MARKET HAS JUST CRASHED!!! US HOUSING IS SEEING ITS DARKEST DAYS AND REAL ESTATE OWNERS HAVE LOST IT ALL” (In Bakersfield California). We hear this kind of news time and time repeatedly, but don’t read all the details or are not informed of the entire situation. The primary cause of chaos in this scenario is the ignorance of the meaning of ‘The Real Estate Market is and what it means. What exactly is “Real Estate Market”? The “Real Estate Market” is the place where land and buildings are bought, sold, and leases are made. It all sounds fantastic but what are the niches that comprise real estate? Almost endless.
The Four-Cycle Phases of Real Estate
It is regarded to be cyclical. This means that it moves through cycles. Imagine the real estate market as the seasons, with the only difference being that the market can change from summer to spring and then winter within the span of a month. The winter season may be upon us in the case of Jon Snow, but what would happen if it remained in winter for the next five years? This is the reason why it is difficult to predict as it is difficult to predict consistency. Real estate is able to move through four phases within its cycle. It then repeats itself. The four phases are Expansion, Recovery, Hyper Supply as well as Recession. The graph below shows the movements of this market cycle. However, it is important to understand that there isn’t an actual beginning point for the cycle.
At this point the market is currently recovering, and the market isn’t dropping out of the sky. The market is starting to move upward. This is the perfect time to maximize the value of buying at cheap costs. Sell low to buy at a high price, remember. There are many indicators of this stage which include high, but stabilized unemployment, a sense of fear in the entire populace (evident in the media) and the large amount of foreclosures on homes. The only thing you’ll hear are the same things from the majority of people. It will include “Real estate isn’t safe”, “there is too much risk right now”, “I wouldn’t do that if I were you”, “My friends, brothers, cousins, sister lost it all because of real estate”. Be educated, be intelligent and avoid those who don’t know that everything is true because their financial advisor can now be a specialist on what is wrong with property.
The confidence in real estate is returning and growing. In this moment, you’ll notice a variety of signs of growth like the rise in the cost of homes (due to a reduction in supply and a rise in demand) and businesses are making the decision to expand their operations by purchasing additional commercial property and bringing on employees. This is why you’ll find real estate developers constructing more and more properties in order to keep up with the demand. It’s the best time to search for bargains, but you’ll need to work harder to locate the best ones. Also, you should take care at this period, as investors looking for appreciation investments will be swimming around like sharks and making prices rise and climb.
Hyper Supply or “the beginning of the end” is what you only hear about in the news or from people is that real estate is an investment that you ought to invest in. The period comprises the highest prices for real estate as well as massive building projects, and everybody wants to play on the property market. This is all focused on the effect of dominoes caused by the overpayment for land, buildings and construction.
In the expansion phase, the construction of more structures is seen as necessary to meet the growing demand, but when the equilibrium between demand and supply is achieved, the real work begins. Because of the time construction takes in the phase of expansion, the supply will eventually surpass demand, and vacancies will increase as the counting down to the end of the game commences. You’ll hear lots of people talk about making huge fortunes and huge sums of money at this time. This is something anyone can achieve during an uptrend. Be aware that the most wealth is earned at most low points. So, when you are in this time period and do not become enticed by it, remain perseverant, stay with your numbers and keep your knowledge of real estate.
And then everybody is screaming ‘TIMBERRRR! ‘!!! The abundance of development projects good looking in phases 2 and 3 are now unoccupied and not able to sell, leading to an increase in prices. Homeowners are suffering and investors are having a difficult time paying off mortgages, with a decline in rent, and a rise in vacant. However this could be a thrilling period when it comes to real estate investment but be cautious. The most educated investors will be waiting impatiently for the supply to fall below demand, and will be able to grab bargains, while helping save their own local economies. It was the small and large investors from all over America who believed in this opportunity when no one was a believer in real estate during this time during the Great Recession that played a crucial role in rescuing this US economy.
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