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Property Market Cycles – Phase 3 Early Sellers
Following phase 2, the next stop of the market cycle is Phase 3 Early Sellers.
The market slowly creeps into this phase when developers find that it can be profitable to start building more homes in masses again. For academics, this is often referred to as the “Point of Equilibrium”.
Local investors will also now be convinced that the property train cannot be stopped now. Local and foreign buyers start pouring money into the real estate market like a free flow drinking party.
Everyone is scrambling for a piece of the action.
Anything associated with properties are generating buzz. Completed and under construction properties are rising fast and it does not even matter if you are not generating any cash flow for under construction properties. Prices are rising so fast that people are only looking at potential capital gains without a care for property investment 101 which states that you must get good rental yield.
Demand for investment properties reaches it’s peak. Transaction time narrows down to it’s shortest possible. At dating events, men get turned away for owning just 1 property. It seem that having 1 is no longer enough.
At this peak, apartments are getting sold on the very day they get listed in the classifieds.
It has become a sellers market.
As available properties are being snapped up, the number of properties that are available for sale starts to drop. Developers take the cue and start buying more land to build more homes.
But alas, there is always the time lag as explained in Phase 1.
Bidding wars go crazy as soon as properties come onto the market. New launch condos sell out the day it open it’s doors. And in extreme cases, you might even observe properties starting to transact above it’s asking price!
Real estate fever hits the nation, and prices rise together with rental rates.
People who have never even considered investing in properties enter the market hoping to land a windfall. Developers outbid each other to buy land for extremely high prices thinking that they can pass on the costs to excited buyers.
Even properties in undesirable locations and shoebox apartments are suddenly perceived as shrewd buys when you look at them from another angle. They can always be sold to the next buyer in the queue… at least that’s what everybody thinks.
Jobs grow while wages follow suit. More and more people are moving out on their own. And home owners start buying their second and third homes even when they can hardly afford it.
They buy with the pure assumption that they will make it all back from capital gains alone.
Rookie investors especially, will buy in the hope that someone else will buy from them later who thinks exactly the same way. Builders will be building at full capacity.
It has become so easy to make money that people who have never been in this business start developing mini projects themselves.
Manufacturers and wholesalers start building and call themselves developers. MNCs that have never got into properties start partnering with developers to build condominiums for an easy profit.
It does not matter if the world is going through a global financial crisis, locals think that their land will never be affected.
By the end of this phase, speculation has become widespread. Prices have gone through the roof to a point where the mass market no longer can comfortably afford to buy a home. Near the end of this phase, a great deal of speculation has taken place.
When the market is going down, everyone thinks that it will continue to do so forever. And when markets go up, people also think that it will stay the same way forever.
This belief makes people buy at whatever price just to own a property and hitch a ride on the great property boom.
The interesting fact is that properties being bought up are yielding smaller and smaller returns on investment.
At the end of the day, a huge section of investment property owners will be holding on to properties that will drain their cash flow and tough to let go.
Investing In Properties During Early Sellers Phase
The best way to make money from this phase is to flip properties. The longer you stay in this transition phase the riskier your investment becomes.
It is also a good time to sell the properties you have bought during the early buyers and late buyers phase.
You are pocketing a good sum.
You might also consider selling those properties acquired in the earlier phases and trading up to one in the town area where demand and rental rates are at it’s highest.
Higher valued properties also mean that you make a higher gain from every percentage increase in value compared to a lower valued one.
Sophisticated investors also use this opportunity where value is at it’s highest to leverage equity loans to take control of more desirable properties.
Doing so will increase the worth of assets in your portfolio exponentially.
You will be controlling assets worth much more that what you have previously. And we have yet to even talk about the additional rental income you will pocket.
For more information on equity loans, check out the mortgage section.
As you can see, being an active property investor pays off instead of being a passive one.
Although this is not the best time to buy properties as the market is starting to warm down, you can still find apartments with good rental demand.
This is also a good market to buy into and hold.
But when there are clear signs that things are going down, it is in your best interest to sell and count your money.
There is no predicting what can happen next, but the longer you remain in this market, the more risk there is.
Just like when you entered the market when your friends are thinking you have gone bonkers, you will now be leaving when they are scrambling themselves to purchase a unit.
Just remember to accept all compliments when people start realizing that you are a natural born property killer.