Is it safe to play the real estate cycles?

Like all investment markets real estate does tend to move in cycles which are heavily connected with the economy and interest rates. In theory, history shows us that the difference between the troughs and the peaks of real estate cycles make it possible to trade real estate for a profit. We are by no means suggesting this should be your main investment strategy but there is potential to make a decent return if your timing is right.

Hindsight is a beautiful thing

Time and time again people look back towards the 2008 US led mortgage crash which resulted in a worldwide economic slump. It looked obvious, sub-prime mortgages were being handed out like sweeties and this would obviously have an impact upon the economy in due course. Yes, we can all look back with hindsight and suggest that it was obvious the US market was heading for a crash but who would have expected the worldwide economy to follow?

Peaks and troughs

There are peaks and troughs in every investment market and if you are able to time your purchases near the troughs and your sales near the peaks then you will do very well. The difference between these peaks and troughs does vary between different investment cycles but on the whole there is often more than enough to make a decent turn. So, is it really that easy to play the real estate cycle?

Buying before the bottom

While you would obviously want to buy your real estate assets as near to the bottom of the cycle as possible, once the market touches the bottom it tends to bounce very quickly. As a consequence, you will probably need to start buying your real estate assets prior to the eventual bottom of the cycle so that you have a position when the market does eventually turn. Even after the market has turned, and you believe there is still significant upside, there is nothing wrong with topping up your real estate holdings on the way up.

Selling before the peak

Again, in theory we would all like to sell our real estate assets at the peak of the market and then buy back when the markets have bottomed out. If you look back, history shows us that professional real estate investors will begin selling their assets before the market peaks and then turns. The reason is that once the market turns many people will be trying to bank a profit and this can lead to a fairly sharp correction, surge in sellers and buyers taking the power. This is very similar to what professional traders do with stocks and shares.

Don’t trade all of your assets

If you are looking to trade real estate on the peaks and troughs it is not advisable to do that with all of your investment funds. Those who have been successful over the years have tended to keep a backbone of long-term assets while trading short-term assets as and where applicable. The key to using the real estate cycle to your advantage is timing, a feel for the market and the courage to go with your convictions. Even if your timing is not always correct, it is never wrong to take profit (even if it is too soon) and if real estate offers value in the longer term is there really a problem if you have bought before the trough of the cycle?

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