It’s been said that real estate runs in ten year cycles, while investors’ memory stretches to fill only about half that time. Right away, there’s an obvious potential for a problem, especially once we get about five years from the end of the most recent cycle. In short, that’s when investors begin to only have a hazy recollection of what has gone before and focus more closely on the here and now data reported by the financial media. While it’s critical to maintain an up-to-the-minute understanding of today’s market, it also pays dividends to keep one eye on the larger picture.

Re-Booting the Market

Investors should expect the housing market to re-boot itself about once every decade, give or take a few years. This happens regularly enough that no one should be taken by surprise when it happens. Does this mean you should up and sell all your income properties at the precise instant you think it’s reached the tipping point? No! Regardless of infomercial claims on late-night television, no one can predict the end of a housing market cycle with any accuracy. Sure, you get a few yahoos that guess right each time around, but that’s more a matter luck than brains. Tune out most financial media and “guru” chatter. You should already have a rock solid strategy in place to follow no matter what the broader market might be doing.

One reason Jason Hartman suggests income property investors refinance a property every 7 to 12 years is that no one knows when the latest bubble will break; you need to be regularly extracting equity that has built up and reinvesting it in more properties.

The 5 Year Surprise

The important thing to remember is that there comes a point, usually about five years after a bubble-bursting market blood bath, when investors come sniffing around again. Memories of the most recent price drop have faded into the background. The media, having long ago grown bored with the topic, has moved onto more interesting stories. The problem – and what gets newbie real estate investors slaughtered time and again – is they are afraid to pull the trigger on a deal until prices have begun a sharp run up again. Those who trust their instincts and understand the concept of five-year vision have already snapped up the best deals much closer to the bottom of the cycle than the top.

Look at the housing market with ten-year vision and the odds are better you’ll see more clearly and be well on your way to the land of financial independence for the next housing market cycle…and the next…and the next. (Top image: Flickr | karola reigler photography)

The AIPIS Team