While the basic idea of investing in real estate is to buy as low as possible and to sell as high as possible, our statement above may seem a little bizarre. Why on earth would you want to sell your real estate investments before the top of the market?
History shows us that when everybody is buying the market it is possibly time to sell and when everybody is selling the market it is possibly time to buy. Again, this may also seem like a bizarre comment but we will explain below.
Contrarian investment strategy
The idea of selling before the top of the market is not something new, something which many professional investors take on board and can prove to be extremely lucrative in the longer term. The fact is that when a real estate market is moving ahead and it seems as though it could go on forever that is the time to start worrying. Investors will pile into real estate to chase the hot money and these are the investors that add fuel to the fire of the final push of any bull run.
They will buy for the sake of buying, all traditional valuations will go out the window and there may just be in it for a relatively small turn. This suggests that when the market does about turn and everybody turns a “seller” then it will turn very quickly and you may get left with your investments as everybody else rushes for the exit. Thereby, selling partway through the final bull run of any real estate market may seem crazy but it will allow you to cash in your real estate chips before everybody else bails out and we see a relatively quick asset price correction.
Quote from PropertyForum.com : “Electronics giant Sony Corporation has this week announced plans to move into the real estate sector, brokering property sales and offering consultancy services. While this is far removed from the company’s traditional electronics market it does highlight how big businesses are now looking towards real estate investment as a long-term income stream.”
Bull markets never last forever
When a real estate market turns upwards slowly but surely you will see more and more professional investors and researchers issuing buy recommendations and very positive forecast for the future. There will always be a number of individuals who join the party late and there will also be many who do not agree with the valuations going forward and believe a particular market is overvalued.
The majority of these researchers will have clients who are desperate to make money, desperate to find the next hot property market and will expect their researchers and their advisers to make this possible. The longer a real estate bull-run continues the more of these relatively negative researchers will reluctantly turn positive. When the vast majority turn positive then the chances are that valuations have gone out of the window, they are just chasing the trend and it may well be time to consider cashing in your chips.
The same can be said of a depressed market because there will always be some researchers and advisers looking to bottom fish on the way down. When the vast majority of advisers turn negative then it may well, rather bizarrely, be the best time to start picking up stock. Prices will fall, demand will have dried up and you may well be able to negotiate a very attractive deal. There is also the chance, as and when the market does recover, that the initial stages of the market bounce will be fairly quick and you may miss out on the turn.