If you look at any real estate market around the world there will be positive, neutral and negative headlines everywhere you look. Very often it is the “louder” headlines which catch your attention creating noise which can influence your immediate opinion on any individual property market. It is therefore imperative that you ignore the peripheral “noise” associated with the financial media and do your own homework.
At the end of the day we all want to buy property at the bottom of the market and sell it at the top – this is human nature. The fact is that nobody can really predict the bottom or the top of any property market and therefore you have to do your own research. Look at the long-term trend for an area where you are contemplating a property purchase, how is the local economy, is the job market buoyant, are there any major changes expected in the future?
It is impossible to forecast any economic or investment trend in great detail but you can get a general feel for things if you look at the area in detail. Once you have found what you believe to be a solid positive long-term trend you then need to work backwards and see how the situation is today.
Even the most positive of long-term trends will likely experience great volatility in the short to medium-term even if the long-term trend does remain intact. This is where moving averages and graphs can come into play because looking at any figures in isolation can give a very different impression compared to long-term data. Unfortunately it is short-term trends which impact investor sentiment and can have a material impact upon property prices which can then lead to overbought and oversold positions.
If you’re able to put to one side short-term trends and concentrate on the longer term picture it is possible to put together a long-term portfolio which can create significant rental income and capital gains.
If the trend changes, review your options
There is nothing wrong with a long-term investment strategy but you do need to review your opinions and your forecasts on a regular basis. If the long-term trend appears to be intact then there may be some tinkering around the edges or perhaps nothing to do. However, if the data is suggesting the long-term trend may be changing, maybe a downturn on the way, it is time to look at your options in greater detail.
There is nothing wrong in changing your strategy, although it is dangerous to base this on short-term changes, and reviewing your investments. It may be that you decide to reduce or even dispose of all of your investments in a particular area. Many people make the mistake of refusing to take a loss, even if the long-term trend appears to have changed, instead deciding to hold onto what may well be underperforming assets for some time.
For those more at home with stocks and shares it is possible to use the same principle in real estate markets. What are the prospects for the company/real estate market? What are the prospects for the sector/area? Does the investment still offer good value on a long-term basis?
You should always review your investments on a regular basis taking into account your changing financial situation and possible changes to the long-term prospects of your real estate assets. Never be afraid to change direction.