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A Guaranteed Way to Predict The Next Cycle...
simply doesn't exist! Yes, there are ways to expect a dip or rise in any given market, but even these are not consistently reliable. The reason a real estate cycle is so difficult to predict is that there are so many factors that influence a market. A quick example is Calgary both in 2007 as well as this year. In 2006 every educated real estate investor understood that a dip was coming, but nobody knew exactly when it would hit. The reason informed investors knew a fall was coming was because of how fast the market was rising combined with new builds in the city as well as how long listings were staying on the market. These are three factors didn't tell the entire story, but they did follow basic supply and demand rules. Informed investors did well in 2007-2009! This was partially due to understanding market trends and partially due to plain old luck... When the US financial market hit such hard times in 2008 the fallout affected Calgary and prices fell below what they would have without the financial crisis. While it paid to be informed... most informed investors did not comprehend the extent of how bad the US mortgage crisis actually was.
This past year has been fascinating. I do not know one informed investor who predicted that oil prices would tank and then stay low for more than just a couple of months. I have heard many people talk about how Calgary would fall extremely low immediately... That didn't happen. Calgary has been relatively stable because, among many other factors, while oil prices affect us here we are also affected by the loss of jobs in northern Alberta and the trickle down of people looking for work in Calgary and needing a place to live.
Complexity
A wise individual once said (this is a paraphrase) that simple answers given before complex situations are more fully understood are pretty much useless answers. However, simple answers given after a person has wrestled with more complex ideas can often contain great wisdom. This world is complex, relationships are complex, addictions are complex, bullying is complex, and real estate markets connected to economies and financial markets are also complex. To come up with very simple explanations only helps the masses of people who want to be comforted instead of go through the process of wrestling with complex ideas and situations. I have spent innumerable hours looking through data and setting up models that help me understand the Calgary real estate market. Does this allow me to make decisions that contain absolutely no risk? No. They do predict norms and trends and high percentage guesses.
If No Guarantee... Then What?
Last night I was in a bank and the teller asked me what I do. I stated that I help people understand real estate investing and sometimes work together on real estate deals to maximize time and money efficiency with families. She asked me if the market is good for real estate right now. The way I responded surprised her. I said "Every second of every day is a good time to invest in real estate no matter the market".
I've written about this before, but I will recap here. Down trending markets are great for purchasing properties for very little money (supply is high, demand is low). Up trending markets are great for selling properties (low supply, high demand). This is an oversimplification, but I have at least 2 investing strategies for every type of real estate cycle and this allows me to take advantage of where the market is, not where I want it to be. This allows me to make money on real estate almost no matter what real estate does for even long periods of time. Read my previous blogs if you are interested in learning more about what I mean. The key to real estate is understanding that appreciation of a property is one of many ways to make money, and the least reliable in the short term... With that in mind it is now time to look into other strategies for making money with real estate and if that can be done, then appreciation is simply icing on the cake rather than a do or die lottery.
One quick note: Flipping properties is not investing! While programs on TV make this idea look extremely sexy and easy to do, it is a business at best if done properly, but not investing. Investing is longer term than a few months.
Here's to your future of risk-averse investing!
If you would like to learn more about investing in real estate please
contact me at the email address listed at the beginning of this article
or go to my website at: www.akerahomes.com/investing-in-real-estate.html
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