Real Estate Investing Explained

Real estate investment is generally considered to be more of a long-term investment than a way to make a quick buck. Realty wealth is rarely made overnight, and usually takes years. When considering real estate investment, you must begin to form strategic views of the property market.

Any property investor needs to invest with a strategic mindset that is unaffected by emotion. The real estate market is in an endless cycle of peaks and valleys, so the development of an investing strategy will involve watching the market in order to determine its current state. When it comes to the property market, there is no room for cutting corners.

In order to properly invest in property, you must ask yourself if the real estate is at a peak, or in a valley. In other words, is the market on its way up or down? In order to determine the position of the realty market you must first understand the factors that influence it. While the real estate market is in a constant cycle of change with periods of quick and slow change, it will always flow in the same direction. The strategic investor will always be careful not to allow their emotions to influence their investments; emotion has no place in the real estate market as it leads to poorly thought-out investments and financial loss.

The Role of Emotion in Real Estate Investment

Denial is the most dangerous emotion when it comes to investment, namely, denial of the true status of the market. Some people have invested so much sweat, effort, time, and energy into an investment that they cannot walk away from a poor investment, even when reality tells them otherwise. Denial appears when investors plots the path to success in their head and then become blind to the market trends that will push their plan off course. In addition to denial, there are two major emotions that affect investors – fear and greed.

Investors who are fearful will hold on to money that they should have invested. The fear of risk not only leads to failure to invest in properties that would have brought in profit, but also the premature sale of property because of the fear of the market crashing.

Investors who are greedy tend to throw money into investments that they believe will provide fast, high returns without properly considering the possible pitfalls. This often happens when there is a sudden boom in a specific market and everyone seems to be investing. Every growth in the market is followed by a swift downward shift, and greed only leads to financial loss.

A smart investor will use the emotions of others for personal gain. The investment mistakes of others will lead, more often than not, to profit for smart investors. This may sound cold or disheartening, but this is the reality of the investment world. The investor who makes the most intelligent move will win at the expense of a more impulsive buyer.

The foundation of property investment strategy is the determination of the current state of Ottawa’s real estate market as well as the direction in which the market is traveling. While keeping emotion in check, a strategic investor will make moves based on real market statistics that influence the flow of the market.

Market Flows and Shifts

There is a fundamental difference between a real estate market flow and a market shift, and the key to proper investment is understanding the signs of each. A market flow is the overall medium-to-long-term change in the direction of the market cycle. A market shift is when the market makes a sudden jump or fall. Market shifts usually invoke emotional investments. A sudden jump in the market may result in people throwing money into properties that will drop in value shortly after. Sudden drops in the market cause investors to become scared and pull out of their investments too early.

Newspapers are the worst culprit for feeding emotional investments. The media will often sensationalize real estate market shifts and make them appear as if they are changes in the market flow. Newspapers will often report that “the market is doomed” based on short term spikes in the market. This often leads to mass emotional (and poor) investment. A smart real estate investor will see through this facade and focus instead on the reality of the market situation. Smart investors must be able to filter through all of the statistics, headlines, and information, and look for the reality of the situation, and the true flow of the market. This often means going against popular belief.

The wave-like flow of the real estate market, or the cycle, exists in any country with an open market that is free from heavy restrictions and political interference. Some major factors affecting the flow of the real estate market are population growth and migration, rental prices, and the rate of new home construction. A complete cycle of the real estate market usually takes between 6 and 19 years with the only sure thing being the constant up and down motion. We can always see the direction in which the market travels but the duration of the current cycle is anyone’s guess.

Properties that Defy the Flow of the Real Estate Market

There are always properties that defy the forces of the market cycle. Prime properties that always carry high demand with them remain valuable regardless of market conditions. For example, the Rideau Centre in Ottawa has some of the most valuable real estate in the region. It is hard to recall a time where a vacant shop in the Rideau Centre has ever taken longer to fill then the time it takes to clear out the old stock. Within a week of one store closing, a new retail outlet is setting up shop, posting an ‘opening soon’ sign often before it has become evident that the previous store has even left.

Areas in which properties defy the flow of the real estate market always have something exceptionally desirable. The desirability, or constant demand, of these properties that defy the market cycle can either be temporary or permanent. A new commercial development nearby may lead to greater demand, as can increased employment opportunities. This sudden flourish in property value was evident in the Kanata region during the tech-boom of the late 1990′s and early 2000′s. Many high-tech companies had set up headquarters or offices in the area, and because most people weren’t living close enough to their workplaces, many people working in Kanata wanted to live there to avoid lengthy commutes.

Social and cultural influences can also create real estate hotspots. If there is a sudden influx of people of Asian descent, real estate prices in Chinatown can be expected to jump as well.

The opposite can also be true and social, cultural, or economic factors can cause certain areas to perform poorly compared to the state of the overall market. One example of this would be an occurrence of contamination in the land that affected a large area. People would be wary of investing in the area, and those with current investments would be inclined to sell below market price in order to get out.

Analyzing Statistics for Real Estate Investment

When analyzing statistical data related to real estate markets, it is important to consider the true meaning of the data. A newspaper stating that a statistic is significant does not always mean that it is. News and media agencies are notorious for using loose statistics to support a greater or more profound argument. One example would be the average sales prices of homes in a given area. The sale of a number of high-priced properties can skew the average sales prices, making it seem as though prices are rising when in fact overall sales prices are actually dropping. It is important to be conscious of these facts when considering the purchase or sale of your real estate investment.

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