Three Parts of the Real Estate Cycle That First-Time Investors Must Understand

The real estate market functions on a cycle which is bound to face ups and downs. Therefore, having detailed information about every aspect of private equity or real estate investment is important. Since it is an ever-transitioning domain, it also happens to entail quite many risks.  

There are several advantages to commercial real estate investment. Investors can invest across all the phases of the cycle and with some research, one can make out whether the market is descending or close to a transition. Private equity and real estate investment are two very different classes and knowing what are the major differences between the two is important if you wish to make profits. For instance, if you are investing in the Indian City properties of the KCT group, it is essential that you understand all aspects of this investment and also the dynamics of the market at that point in time.  

Holding periods, return expectations, capital improvement timing, exit strategies are some terms that you should be thorough with if you want to make an informed decision. Do your research on the following phases of the real estate cycle for a profitable deal. 

Recovery: The spatial demands are low and the velocity of leasing the property is minimal. This affects the occupancies at best. The rents are at low prices and new projects are unlikely to be undertaken during this phase. There are opportunities to buy low priced properties if you buy early in the phase. You should have contingency plans in your business strategies owing to the lower chances of leasing the property till the expansion phase.

Expansion: The market and private equity market witnessed a surge in demand during the expansion phase. The job growth is strong and the GDP of the country usually comes back to normal during this time. Consequently, rents rise as well and the occupancies increase. Most businesses whether small or big giants prefer to do maximum investments during this phase. 

Hyper Supply: As the term suggests, the phase brings an oversupply of properties. The increased supply may occur due to a fall in demand or over construction due to a change in the economy of the country. The rent growth raises, but at declining levels. The phase is marked by increased vacancies. Investors shouldn’t panic during the recession and wait out for their core properties.

Recession: The rate of vacancies is high in this phase and supply outweighs demand. The rent growth is negative or below inflation rates. The rents go down to make the tenants stay. This phase is the best one to buy assets in distress at low prices. You need to be patient and wait for the cycle to turn again. 

Even an elementary knowledge of the investment cycle can decrease the chances of risk during investment. Hence, don’t forget to research so that informed decision can be made.  Also choose a trusted company such as the KCT Group to ensure the best investment. 

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