Five Market Cycle Rules That Determine Buy, Hold and Sell
Follow the Five Rules of Market Cycles and you will know when to buy, hold and sell a commercial property. Here are the unchangeable rules that every market will experience at one time or another. Learn the timing, changes and influences and you will be well on your way to ongoing return on investment. Here are the Five Rules:
Rule #1. Markets will continually cycle.
Visualize the Market Cycle as a circle in your imagination. The Recession part of the circle is always followed by a Recovery part of the circle.
Rule #2. Employment drives Market Cycles
Job growth accelerates the Market Cycle. Employment drives population growth which drives demand for Commercial Property, including all Asset Types. Rapid changes in jobs stimulate rapid changes in the Market. Strong job growth can turn Recession into Recovery. Falling job growth will extend the Recession phase.
Employment statistics and job growth statistics must be followed closely and independently of the other four demand and supply variables.
Rule #3. Commercial Property and Residential Property Cycle Independently.
A residential recession can occur at the same time Commercial Property is expanding. Overbuilding and a crash in residential markets are typically followed by a commercial real estate boom to bring the retail and office products to all the newly constructed residential neighborhoods.
Rule #4. Different Commercial Asset Classes Cycle independently.
Eg.: Multifamily and Office properties can be influenced by different market factors in an Expansion Phase and go into recession in suburban setting.
Rule #5. Market Cycles must be monitored continuously.
You cannot evaluate Market Cycles during the due diligence period of a property purchase and disregard the market after the purchase. Commercial Property Investments are held for different periods of time depending on your investment strategy. Market Phases can easily change over a holding period and alter your return on investment. Monitor Market Cycle position, before the buy, after the close and every year that you hold the asset in your portfolio.
The change from Expansion Phase to a Hyper-Supply phase is the key indicator to sell.
If you hold properties nationally, you need to know all local market change indicators. Use our system approach for your Market Analysis and you will make return on investment YOUR business.