History repeatedly serves to show
us that the real estate market is cyclical. It has boom times and stagnant
times, occasionally it suffers a crash but real estate never becomes worthless,
therefore if the experts are right and we're about to suffer a slow to stagnant
period in the real estate market, all is not lost!
There are 5 fundamental secrets
that real estate investors like to keep close to their chest and they are the
secrets that enable them to survive and even profit during a bear market.
This article blows the lid off
the secret world of the professional real estate investor!
1) Aligning For Profit in a Bear Market
When professional property
investors believe the market is entering a downward phase i.e., changing from
Bull to bear - they will change their investment strategies accordingly. One
method that tough investors apply is to buy up property in the best areas that
they can afford once a market is slumping already. Professional real
estate investors know that the best areas for property always boom
again very early on in the next property cycle.
By working in this way they can
then leverage their investment by selling their property early on in the boom
cycle and buying elsewhere and always remaining one step ahead of less
professional investors or average home owners.
Up and coming areas will
eventually peak as well of course as they are swept along on the tide of the
boom, but they will not peak first and investors in these areas will have to
wait longer to see their profits.
Professional investors will
likely enter these areas just before they peak and sell up just before the heat
goes out of the market enabling them to again buy up what they can afford in
the best areas thus positioning them ready for the next upward trend. And so it
continues!
2) Slow Down Your Speculating
You may already have decided that
the time is no longer right to be over extending yourself and you may have cut
back on your property purchases, but remember that making any home improvement
or taking on any renovation projects during a downward period of the property
market is also considered to be speculating. Don't just assume that capital
appreciation from your property will justify home related expenditure right
now...in a bear market it won't.
3) Never Forget the Supply and Demand Theory
Property prices don't go up
infinitely, if you examine the ebb and flow of the market in the US over the
past decades for example, you will see that stand alone investment in real
estate would've returned you gains of just over 1 percentage point above
inflation! There comes a point in every market cycle when the market runs out
of investors willing to buy up at the top prices and there comes a point when
first time buyers are frozen out of the market. As demand dries up, over supply
brings down prices and this stops the entire market in its tracks. If you
remember this fundamental fact and examine the movement of the market closely
and carefully you will be able to see when supply is about to outstrip demand,
you will be able to watch first time buyers reigniting the market, you will
understand when the time is right to sell and when the time is right to buy.
4) Balance Real Estate Exposure
You may assume that your only
exposure to the property market is what you physically hold in the way of real
estate assets - but don't forget all your paper investments as well. Do you
have money invested in REITs, do you have funds that invest in commercial property as part of the
underlying portfolio, what about your retirement fund, which market sectors are
the fund managers investing in on your behalf right now? Don't assume that fund
managers will make the right decisions at the right time on your behalf; you
might be able to see the heat going out of the market quicker than they can
react. If this happens you have to be prepared to rebalance your entire
portfolio and move your exposure away from real estate if you believe the
market is about to dip.
5) Protect Your Equity
There is nothing more valuable
than the equity you own in your own home. Do not put that at risk. It is very
tempting in a boom market to re-mortgage yourself back up to the new greater
value of your home, but in so doing you expose yourself, your family, your home
and your future to unnecessary levels of risk. Secure the roof over your own
head first and foremost, and only then proceed into the greater real estate
market with care! Do not be tempted to secure any extra loans or mortgages on
your family home. Professional and wise real estate investors worth their salt
will always secure their own position first and foremost.
Ravi chauhan writes on
behalf of, Indian real estate which is an internet portal dedicated to meet
every aspect of the consumers needs in the real estate industry whether it is
House, Land, Villa, Studio Apartments etc. I recommend checking out my last
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