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The 3 Continuous Cycles of Investment Real Estate"You don't have the right or the power to predetermine what the marketplace wants and what the best price, package, or approach will be." Jay Abraham, Getting Everything You Can Out of All You've Got Real estate isn't a well-oiled machine that works in easily predictable cycles. You can't control it at all. It's an exciting monster that keeps investors on their toes. To maximize profit potential, real estate investors have to be able to read the market and know what cycle it's entering. In other words, cycles aren't predictable Don't make the mistake of thinking that real estate cycles change instantly or overnight. The market just doesn't move that fast. But, think of real estate cycles as more like waves you can't stop. Once you see them coming, just get prepared! Three Cycles of Real Estate
Expansion Let's note first that each cycle not only applies to nationwide or statewide growth, but also to local communities and even neighborhoods. One neighborhood could be in expansion while another neighborhood across town could be entering the contraction cycle. Expansion then applies to job growth and population growth. A burden is placed on the infrastructure. New roads have to be built. Schools and hospitals have to be put in place. Housing accommodations have to be made. Prices are on the rise. Absorption Absorption happens when growth finally grinds to a halt. There may still be some building going on and there may still be jobs being filled. But, occupancy falls. Prices fall. When a community has reached the absorption cycle, governments will give incentives to businesses to relocate into that area. Growth can then start on the rise again. Contraction Contraction is a step beyond growth coming to a grinding halt. It marks the decline of growth. You see increased vacancy rates. People move. Businesses close. You may not think of this as a very good time in real estate. But, it was inevitable. Real estate can't grow forever. The bottom has to drop out on the market sooner or later. A Quick Crash Course I've watched one community completely transform over the last ten years. The downtown section was not a very safe place to go. Several streets were run down from years of abuse. That was until an initiative of recovery was implemented. The initiative was marked by the news that a very popular nationwide department store was considering opening in a location near town. To handle growth, complete housing communities were designed and the building started. A new school was built on the outskirts of town. A new hospital was built on the other side of town. But, the most phenomenal part was how the downtown section and the old city streets were rejuvenated. Every building downtown received a face lift as store owners were given grants for their participation. Downtown never looked so good and it invited fresh visitors, more activities. One old city street was designated for townhouses. Once the townhouses were put in place, landlords began putting more money into their own real estate investments. The rents went on the rise. The old abused city street turned into one of the most beautiful stops on the historic tour. Everything is finished. The store moved into town. The school is in place. The hospital has been receiving patients now for over six months. The townhouses were complete a year ago. And the housing communities were stopped earlier this year. The expansion cycle is now over. The town is entering absorption. Now, that's a crash course in expansion, absorption and contraction. The cycles always repeat. That's the nature of real estate. But, nothing exact determines growth or decline. It can be any number of changes. If you know how to read what cycle a neighborhood, community or town is in, you can better position yourself for real estate investment success. Start applying these principles today and begin flipping houses for FREE by starting your 7 Day Trial at INSTANTRealEstateSolutions.com! Brad Wozny |
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