- Understanding the four phases of the real estate cycle
- The golden time to buy a property is during the first phase, then sell in the second phase. The 3rd and 4th phases should be focused on looking for a potential property.
- Choosing the right time is a vital aspect when investing in real estate
“Robert suggests buying properties in the 1st, while phase 2 and 3 is the time to sell. He argues that phase 3 and 4 are not the times to buy, noting they are the times to research and target properties to buy when phase 1 kicks in”
When purchasing properties, many assume that location is the only and most important thing to consider. Because when a property is in a good location, its value tends to escalate. While that can be true, investor and Author Robert Kiyosaki believe the real estate cycle also plays a significant role in determining the property’s value.
In his book “The Real Book of Real Estate’’ Robert mentioned that time is vital in real estate investment since deciding to invest at the right time could bring promising benefits while minimizing potential risks.
‘Time’ refers to a cycle of the real estate market. There are 4 phases in a real estate cycle – each determines the price and value.
In this phase, property prices remain stagnant. There are no new construction or development projects. However, investors should keep a close eye on properties with prices below the market value and act quickly. During this time, the supply exceeds demand. In turn, this allows for more desirable options with desirable offerings. Purchasing during this phase is considered the best decision since the price will rise after the recovery phase ends and the expansion phase begins.
As the economy improves and job demand increases, people will regain confidence in the economy, resulting in demand for space and housing. During this situation, it is advantageous to develop property that caters to the trend and snaps up for more than the market value.
Investors went above and beyond to ensure supplies met demand during the expansion phase. Eventually, the inventory began to exceed demand due to a shift in the economy or excessive inventory. Property owners frequently liquidate their properties to avoid their property becoming vacant or unsold. With that said, it’s an opportunity to identify the properties you’re confident will perform well in the coming cycles.
In this phase, the vacancy rate continues to increase while the property prices remain stagnant, while some property owners are becoming more eager to sell their properties. But it’s an opportunity to buy distressed properties at a deep discount.
Robert suggests buying properties in the 1st and, while phase 2 and 3 is the time to sell. He argues that phase 3 and 4 are not the times to buy, noting they are the times to research and target properties to buy when phase 1 kicks in.
Written by: Kem Sreyneth