Investing in real estate is tricky. You can’t simply decide to go for it one day without any knowledge and expect success. Aside from the basics, there is more to know, especially real estate cycles.
If you’ve been dabbling in real estate, you’ve heard of the phrase before. So, what does it mean, and why does it matter?
A real estate cycle is a chain of recurring events in the industry that affect the market. Several factors influence a period such as demographics and economy. It’s widely accepted as a supply-and-demand concept.
For example, a vacancy in a particular area is high. Building a new place for tenants will pay off because they need a new location. However, if the occupancy is high, it won’t be the smartest choice as people are already settled.
But besides the local side of the cycle, there is also the financial side. The capital flow mostly influences it. Essentially, if many people want to buy properties, the prices will increase, and vice versa.
There are four phases in this specific cycle, namely: Recovery, Expansion, Hyper Supply, and Recession.
Recovery is often the most overlooked of all the phases as prices are still low. The occupancy rates are also still not looking great. For anyone on the sides, the Recovery phase won’t look much.
However, those who look at data will see a slow upward trend to the occupancy rates. During this time, it’s best to acquire properties and improve them. Then when Expansion comes, you’ll have a stronger return.
Next is Expansion. This is the best time for both investors and brokers. There is a high demand for property, so almost any sector benefits from this phase.
Hyper Supply comes when investors begin seeing the downward trend. The market will gradually decline and the occupancy rate will fall. It is the best time to look for long-term and stable tenants for continuous cash flow.
The Recession comes last and is often the most dreaded. Yet, it’s inevitable and there’s no other way than overcome it. And of course, it can be “avoided” as long as the supply made for the slow demand is monitored.
The real estate market tends to drop or increase at specific points. Knowing when to invest or sell your property is vital if you want to gain profit. That said, you have to study the cycles and where you currently stand.
In simple terms, knowing real estate cycles can help you make better decisions.
But how do you determine where you are in the cycle? Many investors and economists have found ways to predict the trend in the market. One of these is by using Big Data.
Big Data is the influx of data we get from various sources. These include both structured and unstructured data. From there, we can see the trend in any neighborhood in the world.
Analyzing and organizing Big Data for real estate cycles can help predict the future. Once you have a reliable prediction, you can create better investment decisions.