There is no doubt that many property investors make good money chasing the next property hotspot but is it quite as easy as they would have you believe? What other risks are associated with chasing hotspots? Do the rewards bear any resemblance to the potential risk?
We will take a look at some of the factors you need to take into consideration when looking at your next property investment and whether indeed chasing hotspots is worth the time, effort and risk.
Timing is crucial
While some historic property hotspots such as the Dubai market have transformed themselves in recent times into a more long-term investment opportunity, this is not the case for all hotspots. The property investment arena is littered with real estate markets once in vogue only to fall by the wayside never to recover. If you are looking to chase property hotspots timing is of the essence and will make or break your investment.
The simple fact is there are many property markets around the world which are intrinsically linked to the worldwide economy so therefore if the worldwide economy is expanding then it is highly likely these property markets will follow. In more traditional investment environments these would include areas such as the US, Europe and the UK to name but a few (although the European market is struggling at the moment due to internal issues). Therefore, there is an argument to maintain your investment in the major markets and follow the general trend?
Fear and greed
Fear and greed drive every investment market you can think of and play a major role in everyday life. These factors are very prominent in many property hotspots because you have the fear of people missing out on an investment and the greed when people hold on too long when the facts and figures suggest the fair value equation has been thrown out of the window. Property hotspots can turn very quickly once the short term punters decide enough is enough and many less experienced investors have been left with assets quickly diminishing in value.
Short-term investments attract greater risk
It is evident that any short-term investment will attract a greater degree of risk because effectively due to your timescale you could be hit by short-term issues such as an economic downturn, specific risk to a particular market and possibly a need to cash in your investments at the wrong time. The longer the investment timescale then in theory the greater the chance of riding the general trend as opposed to suffering at the hands of short-term issues. If you can ride the short term waves, buying at the bottom and selling at the top, you could make an impressive return but what happens when your luck runs out?
There is a greater degree of risk associated with those who chase future property hotspots and look for short-term investments. It would be wrong to suggest that some investors do not make a good living out of this particular strategy but it is high-risk and unless you are prepared to take a loss and move on it can be difficult. The longer your investment timescale the more chance of you benefiting from the general trend (hopefully upwards) as opposed to suffering at the hands of timing issues in the short term.