Perhaps the greatest danger to those investing in the worldwide property market is getting sucked into various “hotspots” and then left high and dry when the markets retract. History shows us that markets do act in the extreme, falling further than traditional valuation methods would suggest and also moving to overbought positions on significant momentum. However, if you bide your time, stick with your long-term strategy it is possible to take advantage of short-term blips which impact the worldwide property market.
Uncertainty creates opportunities
We only need to look at the worldwide economic crash of 2007/8, various elections around the globe and the Greek debacle which is impacting the European economic scene. While it may be wrong to suggest some of these are “short-term situations” there is no doubt that each of these situations have created short-term uncertainty and very often oversold positions. In many cases they “take the froth” out of the market leading to a rush of sellers and an oversold situation.
The key to long-term investment is to remain focused on your core long-term strategy, not overstretch your finances and to ignore human emotions and stick with cold hard facts. In simple terms, human emotions lead to overbought and oversold positions, where traditional valuations often become obsolete, therefore overriding the short-term need to act is the key.
The vast majority of investors often make the mistake of going “all in” when they feel markets are undervalued and there are long-term attractions. If your long-term strategy is correct then some may argue there is no harm in going “all in” if you see value and have the finances to hold on for the longer term. However, many of the more successful real estate investors will slowly but surely increase their exposure as markets fall below “fair value” and reduce their exposure as markets rise above “fair value”.
The simple fact is that you will never sell at the top of the market and you will never buy at the bottom of the market. If you begin to increase your exposure as markets fall below “fair value” then this gives you a position from which to create a strategy going forward. There are then two scenarios, if the markets fall further then you can pick up cheap assets on the way down and if the markets turn and appear to be over the worst there is nothing wrong in accumulating further property assets on the way up.
If the markets change, review your strategy
Real estate markets, supported by economic and political factors, tend to react fairly quickly to possible issues going forward. In order to maximise your long-term profit potential you need to review your strategy when there are significant movements in both markets and investor sentiment. It may well be that the short-term sentiment has moved one way or the other but you still believe the long-term situation offers good value. In that case, it would make sense to remain invested and ride-out the short-term issues.
However, if you believe there has been a fundamental change in the long term outlook for your particular assets and the underlying market then it would make sense to review your long-term strategy. It may be that you buy more assets or you may have to take the difficult decision of reducing your exposure and even taking a loss. The investment arena, both real estate and other popular investment markets, is littered with previously successful investors who were unable to take a loss and appreciate that their long-term strategy should have changed. In many ways it is easier to take a profit, often too early, than it can be to take a loss and admit that you were wrong. If you live to fight another day in your chosen investment market, and you are not dragged down by underperforming assets, then you can dust yourself down and start again.