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Big Wealth Building Opportunities When

Playing the Real Estate Cycles Game

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Big Wealth Building Opportunities When Playing the Real Estate Cycles Game For More Special Reports Go to: ValueHoundAcademy.com

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INTRODUCTION In any growing region of the country, there is substantial opportunity for profit

resulting from careful analysis of real estate cycles. Have you ever heard the old

adage, “Buy low and Sell high?” Well, using a contrarian approach by using real

estate cycles can help you pick the best times to buy and sell real estate for

maximum profit.

In this special report, we will examine the psychology of the “herd mentality” and

how it affects real estate cycles and profits. We will define real estate cycles

including the cause of cycles and the different phases that real estate goes through

during its cycle. Once we understand the basics of real estate cycles, we will look at

how to measure supply and demand during the four phases of a cycle so that we can

determine when best to buy and/or sell real estate.

By using the strategies and techniques mentioned in this special report, it will allow

investors the opportunity to maximize their profits from real estate investments

while reducing their risk.

o Will history repeat itself?

o Does the real estate market always go up or always go down?

o Are their hot markets and slow markets, or buyers markets and

sellers markets?

o When’s the best time to buy real estate?

o Why is it important to be an independent thinker?

o What is a contrary investor?

o What is a real estate cycle and what are the causes?

o How to recognize the “herd” mentality?

o How do the economics of supply and demand affect real estate

cycles?

o Can anyone correctly time the real estate market?


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In the following sections, you will find answers to all of the above mentioned

questions. It is my goal to enlighten you on the importance of learning to

understand and recognize events that are regularly taking place in the marketplace so

that you can become an independent thinker. Becoming an independent thinker

allows you the ability to filter out noise that is thundering from the “herd”.

Profiting from real estate cycles requires you to become an independent thinker so

that you can pinpoint the right time to buy or the right time to sell real estate.

YOU NEED TO GET IN THE GAME

You need to get in the real estate investment game...Today! Real estate is one of the

best investments for retirement. If you are positioned right, you can make money in

any real estate cycle.

There is no better time, as a real estate value investor, to cash in on today’s fantastic

buying opportunity.

The three most important things in real estate are timing, timing, and timing!

According to the many informative and educational books by some of the industry’s

leading experts, the best real estate investment strategy will most likely fail if

executed at the wrong time in the real estate cycle. Timing the real estate market is

the most critical component to the impact on the performance of your real estate

profits.

For almost thirty five years, I have been in the real estate game buying, owning, and

managing over 9,200 units and 2.8 million square feet of commercial space, and

providing advisory services on over $2 billion in value. I have owned or managed

many types of properties from single family homes to office buildings to retail

centers to industrial buildings. I have watched decades of real estate cycles exhibit

similar patterns where there were boom and bust cycles that greatly affected the

wealth for me and my investors. The biggest profits were made in the boom cycle

and the biggest losses were in the bust cycle.

Back in the 1990’s, during the last real estate market crash, I was buying real estate

value investments. My investors and I made six times our money within an average

of 5 years. In today’s most recent crash, we have suffered negative investment

returns because of poor investment timing. While our properties performed better

than the market, we still continued to struggle.


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Over the years, I have learned some very tough lessons that have helped me create

some valuable principles of value real estate investing. Investors should become

more aggressive buyers of real estate when the market has crashed, similar to

today’s environment. The downside risk to investors’ performance is limited while

the upside potential is maximized, creating solid risk adjusted returns. On the flip

side, value investors should become very conservative when the real estate market

nears the peak of the cycle. Timing the real estate cycles is the most critical factor in

determining the success or failure of a real estate investment.

CONTRARY INVESTING

Making money in real estate using real estate cycles is founded on the principle of

contrary thinking. The essence of contrary thinking is learning to think for oneself,

and to avoid the loud noise coming from the “herd”. To be a contrary thinker is to

be a trendsetter where it’s sometimes lonely and uncomfortable at major turning

points in the market. The contrary thinker remains logical and detached when

analyzing market information.

Contrary thinking is the art of thinking for oneself against the pressures of the

“herd.” A contrary investor buys assets that others are rushing to sell, and sells

assets that the “herd” is clamoring to buy. A contrary investor recognizes that if

nobody wants something, it’s likely to be cheap to acquire. If everyone (the herd)

wants it, then it’s likely to be expensive and easy to sell. J. Paul Getty’s slogan for

success was, “Buy when everyone else is selling, and hold until everyone else is

buying”.

Contrary investing works in any market because human nature is the same

everywhere. Most people are followers, not leaders. In the real estate investment

market, the “herd” waits to buy until they see other investors buying and the “herd”

waits to sell until they see other investors selling. As a result, the “herd” buys after

prices have already risen, and sells after prices have already fallen.

Contrary real estate investors understand where we are in the real estate cycle so that

they know when to buy low and when to sell high. Understanding and analyzing the

four real estate cycles is the very foundation of contrary investing, which will be

outlined in great detail later in this report.

We will also look at three very successful real estate investors that are contrary

investors. The contrary real estate investors are Olympia and York, Sam Zell and

Maxwell Drever. Sam Zell once said, “We don't have to make money. We just have

to get there first and occupy the space. Then they'll buy us out.” Maxwell Drever

Buy Into

Extreme Weakness

__________

Sell Into

Extreme Strength


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tells others that, “We not only expect cycles and market aberrations, we feed off

them.” All of these successful real estate investors exemplify the art of contrary

investing.

WHAT ARE REAL ESTATE CYCLES?

Everything in the world around us operates in cycles. The sun rises and it sets. The

ocean tide comes in and goes out. The seasons change. People are born and they

die. The real estate market is no different. Real estate cycles exist in both

residential and commercial property markets. There are national and local real

estate cycles that are affected by different economic, financial, and demographic

factors. Understanding what drive’s the ups and downs of the real estate cycle can

prove valuable to investors and others seeking to profit from real estate markets.

Cycles are common throughout the economy, not just in real estate. Individual

industries, and sometimes the entire national economy, tend to swing from periods

of “expansion” to periods of “contraction.” From a real estate perspective, if the

local economy is booming, demand for developed space will increase. Likewise,

when recession hits, the demand for space decreases.

Over a period of many years, real estate experiences periods of excess demand

(“hot” markets or seller’s markets), and invariably is followed by periods of excess

supply (“slow” markets or buyer’s markets). These swings define a market real

estate cycle. If new supply of space could be produced or withdrawn

instantaneously, the market would always be in equilibrium, and there would be no

cycle. But in reality, a considerable lag exists between the time demand for more

housing or office space is identified and the time new space becomes available. This

lag is a major part of what creates cycles.

Consider what happens when a local industry expands. Population grows as people

are attracted to the area from other parts of the country. As local companies expand,

they need more office or industrial space to grow their companies. Demand

increases for real estate, disrupting the balance of supply and demand. It takes time

for developers to recognize and respond to the increased real estate demand, and

even more time to plan, finance, approve and complete new real estate projects such

as office buildings, industrial building, retail centers, apartment communities, and/or

houses. This is the “expansion phase” of the cycle.

Building too many new projects eventually catches up with and then surpasses the

demand for these projects. Psychology plays a role in this over-correction because

market expansions typically reward risk takers, increasing the developer’s


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tendencies to overestimate potential demand. This “contraction” phase brings the

market back to equilibrium. If new supply continues to come into the market after

demand has begun to diminish, the cycle may enter a down or recession phase,

driving down occupancy along with rental rates.

CAUSES OF REAL ESTATE CYCLES

Real estate cycles have been proven to be volatile, complex and persistent. The

cyclic patterns of these cycles are caused by the market’s tendency to self-correct.

These cycles are brought on by the “Herd Mentality” that leads to overbuilding

because of time “Lag” in new construction. Over enthusiasm from “the followers’

leads to excess new construction from risky ventures brought on by a deteriorating

marketplace.

Herd Mentality

Following an extended period of strong expansion and prosperity, the “herd” adopts

the psychology of affluence and its byproduct, economic optimism, wherein they

enjoy life, have fun, and become economic risk takers. The “herd” mentality of

optimism, once set off, takes on a life of its own and continues until the “herd”

becomes excessively optimistic.

They rationalize that what has happened will continue to happen, and thus come to

see less risk than actually exists. Consequently, the “herd” becomes risk takers,

which in turn creates the conditions for a big bust. This bust, or recession, then sets

off a psychology of pessimism, which continues until the “herd” sees more risk than

really exists. At that point, the “herd” becomes risk averters, and lays the foundation

for a long period of economic expansion. (Stoken, 1993)

If investors consistently buy into fear and sell into euphoria or greed, they’ll make

money. It sounds easy, but in practice investors seldom do it. When everyone

thinks that rents, occupancies and/or prices are going to crash, we tend to be afraid.

When everyone is thrilled with the market, the excitement tends to rub off on us.

Most of us don’t like to stand-alone, clinging to an opinion that nearly everyone else

seems to disagree with.

When people get caught up in a crowd, they stop thinking rationally and allow

themselves to be governed almost entirely by emotions. This state of mind prevails

at nearly all important market tops and bottoms. Almost everyone is convinced that

the market will keep going up – or down – with no end in sight.

“Buy when everyone

else is selling, and hold

until everyone else is

buying.”

J. Paul Getty


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Unfortunately, the market never accommodates a crowd for long. It can’t. If the

market did what virtually everyone expected it to do, making money would be easy.

As a bruised and scarred veteran of the “battle for investment survival” will tell you,

life doesn’t work quite that way. In fact, it’s logically impossible for the market to

follow the path that an overwhelming majority of investors believe it will take. A

contrarian investor looks for important market reversals when the overwhelming

majority of investors expect the prevailing trend to continue.

Lag

Fueled by the “herd” mentality as a result of over enthusiasm, new construction of

space lags economic and market conditions. Excess new construction turns into

overbuilding when new building continues during an economic and market slow

down.

For example, it takes an average of two years to construct an office building, so

when an office developer starts planning, gathering permits, and negotiating with

contractors, the real estate market could look very strong. But, two years later as the

new building comes on line to occupy, the market may have collapsed. This lag

creates overbuilding in the marketplace as new construction continues beyond the

falling demand for new space. An example of Lag is clearly evident in a following

section of this report under Measuring Supply and Demand Dynamics in the chart

entitled, “Real Estate Supply / Demand Cycle.

If new supply of space could be produced or withdrawn instantaneously, the market

would always be in equilibrium, and there would be no cycle. But in reality, a

considerable lag exists between the time demand for more space is identified and the

time new space becomes available.

UNDERSTANDING REAL ESTATE CYCLES

There are four different real estate phases that real estate goes through before it

completes a full cycle. Each phase has its own dynamics that occurs in the process

of completing market tops and market bottoms. Below is a brief description of the

four phases and some events that occur in each cycle as the real estate market

evolves.


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Down Cycle

Market conditions have become extreme. Vacancy and rent concessions are

increasing and rents are falling with new construction seriously slowing. Property is

experiencing cash flow problems and in jeopardy of losing their properties to

foreclosure.

Absorption Cycle

Due to the lack of new construction resulting from the down cycle, the market forces

of supply and demand start to take affect. The market will now go through the

absorption of the overbuilt inventory of space (called positive absorption) as the

excess space is absorbed. The occupancy rates will begin to improve along with

fewer concessions.

New Development Cycle

New construction activity will start due to the demand for inventory of space. With

the increased demand, rents will increase giving way for economic feasibility of new

construction. As the market expands during this phase of the cycle, rents and values

will increase.

Market Saturation Cycle

The fourth cycle appears after the market has peaked and starts to slide downward.

Demand for space begins to subside, as a result of a slow down in economic and

market conditions. Vacancy rates begin to increase, rent concessions begin to re-

appear, and new construction starts to slow down. At this point, the real estate

market has gone full circle.

By looking at the Real Estate Cycles chart, you can see the four cycles. Each cycle

has varying degrees of length and duration. Many times, one part of a sub-market

will go through these cycles many times while being apart of a bigger market cycle.

Each cycle has certain noticeable and consistent characteristics that identify the

cycle.


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Real Estate Cycle Characteristic

Down

Cycle

Up

Cycle

Construction

Cycle

Saturation

Cycle

New Supply

Demand

Vacancy

Rent Growth

Cap Rates

Investor Interest

Arrows indicate direction from previous cycle phase

Interaction of the characteristics determine cycle position

Each cycle phase is unique with respect to these key characteristics


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Cycle Indicators

New Construction Cycle Market Saturation Cycle Down Cycle Absorption Cycle

Building starts Over-building with increased supply Building slows Building demand exceeds new supply

Land sales become active Demand decreases while construction continues Foreclosures increase General economy begins to grow

Reduced concessions Vacancy increases Real estate financing stalls Reduced vacancy

Rents increase Concessions increase Property values decrease Real estate financing picks-up

Capital markets healthy Deferred maintenance increases Real estate service sector shrinks Investors bottom fishing

Large institutional investors buying Rents become flat and drop Build-to-suits become prevalent Rents stabilize

A lot of “Speculation” Building Sublease space increases Developer’s take mgmt in-house

Bank loan defaults and bankruptcies increase

Many businesses reporting losses vs. last year

Construction

Increases

Construction

Decreases

Construction

Increases

Market Tops Over capacity with a lot of excess

Prices peak

Low cap rates

ROI’s Falling

Too much available financing with high leverage

Over enthusiasm creating bad economic deals

Herd mentality

Market Bottoms Excess rung-out with under capacity

Positive absorption with little new construction

Actual NOI’s comparatively low

Higher cap rates

Rental market extremely competitive

Heavy deferred maintenance prevalent

Class B,C and D properties have extreme vacancy rates

Equilibrium

Expansion Contraction

Recession Recovery


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MEASURING SUPPLY AND DEMAND DYNAMICS

Real estate cycles are caused by structural supply and demand forces in the economy

that can be studied, measured and forecasted with some degree of accuracy. The

strategic implications for investors is that it is possible to anticipate cycles and

respond proactively to increase investment returns and reduce risks, thereby

increasing wealth at a significantly greater rate than typical investors who make

decisions based on the “herd” mentality. Let’s look at some basic Supply &

Demand models as they relate to real estate and understanding cycles:

Equilibrium Supply of New Construction Meets the Demand for New Space

MARKET EXTREMES

Market Peak

Supply of Available Space Exceeds the Demand for Space

Soft Market

SUPPLY

New

Construction

Building new space for users

DEMAND

Space

Absorption

Need for Space

SUPPLY DEMAND

SUPPLY

DEMAND


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Market Bottom

Demand Needs for Space Exceeds Supply of Available Space

Tight Market

DEMAND

Contraction Expansion

Signs of Decreasing Demand Signs of Increasing Demand

Businesses leaving the market

Weak economy

Companies downsizing

Businesses going bankrupt

Capital Markets tightening

REAL ESTATE SUPPLY AND DEMAND CYCLE

Note the “Lag” in Supply after Demand reverses course

SUPPLY

DEMAND

Businesses moving into the market

Companies expanding

Strong economy

Population growth

Strong job growth


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As Demand turns down, Supply continues up a bit longer before reversing

As Demand turns up, Supply continues down a bit longer before reversing

SUPPLY AND DEMAND DYNAMICS

In a growing economy, the expanding New Construction and top phases of the

cycle dominate the contraction and bottom phases of the cycle. On average,

there are more years of “good times” than “bad times” for investors.

In a growing economy, the long-term trend line for both changes in Demand

and Supply is upward sloping. At the top or peak of each new cycle, the

additions to Supply and Demand reach new peaks as compared to the previous

cycle. The opposite occurs in a contracting economy.

Change in Supply is somewhat more volatile than change in Demand.

Developer enthusiasm causes Supply to rise above Demand during the top

phase, and developer pessimism causes Supply to fall below Demand during

the bottom phase of the cycle.

The Demand cycle leads the Supply cycle by a period of time. The lengthy

process of planning, financing, and building a new project makes it difficult

for development to begin as soon as the market demonstrates a need or to stop

as quickly as demand begins to decline. The process is commonly known as

“lag” and is the primary reason for overbuilding.

The best indicator of the phase of the cycle is the vacancy rate. Vacancy

reaches a high point during the bottom phase of the cycle, decreases gradually

through positive absorption during the New Construction and expansion phase,

reaches a low point at the top of the cycle, then gradually increases during the

Market Saturation and contracting phase.

TIMING THE REAL ESTATE MARKET

Timing is extremely critical when buying real estate. As Roger W. Barson said, “In

selecting the soundest financial investments, the question of when to buy is far more

important than what to buy.” The principal rule “buy low sell high” applies to real

estate as it does to any type of investment. The best time to make a future profit is

when the real estate is acquired. The ability to recognize real estate cycles gives an

investor the added edge to make informed investment decisions on timing.


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In the mid-70’s during, a very uncertain and difficult times in New York’s history,

rents and occupancy tumbled in the office market to the point the market reached

bottom in late 1976. Many developers and owners of properties were washed out of

the business, where new construction came to a stand still. Olympia and York, an

aggressive and successful real estate company from Canada, saw this as an

opportunity. They purchased several office buildings during the beginning of the

Absorption Cycle from a large New York real estate developer for $320 million with

a $50 million down payment. Many people in the real estate business thought they

were crazy as the market had been filled with a lot of pessimism.

Olympia and York was an independent thinker with a good understanding of the real

Absorption Cycle. They accurately realized the market had bottomed in 1976

because new construction had been greatly reduced, job growth had begun to

strengthen as the economy expanded out from a recession, and pessimism was at an

all time high.

In less than five years, the Olympia and York purchase had appreciated in value to

more than $2 billion. Buildings that had been purchased for $75 or less per square

foot and in some cases were renting for more than that per year. By having the

foresight and courage to buy during the Absorption Cycle at the seemingly most

pessimistic time in a tough real estate market, Olympia and York increased their

significant holdings into a vast fortune with one acquisition. Timing!

Remember the universal real estate credo, “What’s the three most important things

in real estate? Location, location, location.” Well, in my humble opinion, the three

most important things in real estate are Timing, Timing, Timing! There have been

investors that have had huge real estate portfolios reduced to almost nothing, and

there have been investors that came from nothing that have built huge real estate

portfolios…..Timing! What happened to the Phoenix real estate developers and big

institutional investors in the mid-to-late 80’s? Well, we’ll need to ask the

government created organization called the RTC……Timing! What happened to all

the entrepreneurial investors that invested in Southern California in the early 80’s or

in Phoenix in the early 90’s when those real estate markets looked very dismal?

Well, they made anywhere from 5 to 8 times their leveraged money in about five

years. Timing! Here’s something to think about. When are bad loans made, in

good times or bad times? Timing!

Timing the real estate market cycles has been the very foundation of Sam Zell’s

investment philosophy. Sam Zell controls more commercial real estate than anyone

“In selecting the

soundest financial

investments, the

questions of when to buy

is far more important

than what to buy.”

Roger W. Barson


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else does in the country. His empire is huge. The 128 million square feet of office

space his company owns worth $28 billion in 23 states is greater than the entire floor

space in Atlanta, and triple that of his nearest rival. Also, he has 225,000 rental

apartments worth $11 billion, whose locations dot a map like pepper on an egg. And

unlike the “herd”, he gets to gloat that he didn't spend the 1990s buying stocks in

dot-coms--he was in concrete, glass, carpets, and mortar and brick. When the real

estate market took off in the '90s, Zell wasn't just in fat city--he owned it.

Sam Zell likes tough times where pessimism is everywhere, and has long modeled

himself as a contrarian. This philosophy made him a billionaire. That was back in

the late 1980’s when the commercial real estate business was in ruins after a frenzy

of overbuilding spawned by weird tax shelters and the savings and loan crisis.

Shrewd, tough, and charming, Zell smelled opportunity. He borrowed heavily and

bought up scores of properties at bargain prices from distressed owners. He was

nicknamed "the Grave Dancer" and reveled in the title: There is a large statue

outside his Chicago office of an elfin little man dancing on a grave. Timing!

PROFITING FROM REAL ESTATE CYCLES

When the real estate market begins to recover from its contraction, it goes through a

recovery period where vacant space begins to be absorbed faster than new space

coming on the market, thus the beginning of the Absorption Cycle. A contrarian

investor recognizes this Supply and Demand change where Demand out-paces

Supply creating an opportunity to purchase real estate at the bottom of the market.

As Demand continues to expand from a growing economy through expanding

businesses and job growth, rents, occupancies and values begin to increase.

Timing!

As contrarian investors, we analyze micro and macro economic market conditions to

best determine our timing. What specifically are we looking for to correctly time the

real estate market? Well, because the overall national and local economy is the

driving engine behind growth and expansion, we look for expanding GDP growth, a

couple quarters of continued positive job growth, future news that businesses are

getting stronger, and that the capital markets are positioned to accommodate growth

in the economy. With a strong engine for future growth, we then focus on the local

markets Supply and Demand dynamics.

All industries can be measured on current and future conditions using Supply,

Demand and Pricing models. Since our focus is real estate, we look for a shift from

heavier Supply to heavier Demand. Have developers reduced new construction

“In Baseball Paralance,

Hit’em Where

They Ain’t.”

Richard E. Band

“We don't have to make

money. We just have to

get there first and

occupy the space. Then

they'll buy us out.”

Sam Zell

“Grave Dancer”


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below the point of a higher need for new buildings? Has Demand for new buildings

increased above the new Supply of buildings? The market has hit bottom when the

total market vacant Supply of space begins to get smaller as measured by the market

vacancy rate trending down.

During market bottoms, the “herd mentality” becomes extremely pessimistic about

the real estate market. With excess pessimism, opportunities to purchase properties

at distressed prices become readily prevalent to the contrarian investor. As a result

of over enthusiasm, most of the “herd” purchased properties at or near the top of the

market with huge amounts of debt.

Property owners that have a large debt load combined with lower than expected

occupancy and rents, creates properties with negative cash flow. To keep property

operating expenses and debt service paid, owners have to “come out of pocket” to

fund the negative cash flow. Over a period on many months of funding the negative

cash flow, owners become extremely motivated to solve their cash drain problems.

Hence, an opportunity for a contrarian investor to purchase real estate at depressed

prices with favorable financing.

Another huge benefit of purchasing during the Absorption Cycle is that

capitalization rates (cap rates) are higher during this stage of the cycle. Why? Since

Cap Rates are really only a rate of return (ROI), assuming an all cash purchase,

investors command a higher ROI during the perceived Down Cycle. Conversely, cap

rates go down as the market improves because investors require less of an ROI due

to the increased competition from the “herd” purchasing investment properties. So,

if one’s rental income remains unchanged and the cap rate goes down as the market

improves, then the value of the property will go up. However, what normally

happens as the market expands into the New Construction Cycle, rents go up from

the increased Demand and cap rates go down from the improving market creating

“turbo charged” value increases.

Since 1970, Maxwell Drever along with his companies Drever Partners and

Concierge Asset Management has consistently used real estate cycles to profit. Mr.

Drever has spent most of the past three decades fishing at the bottoms of real-estate

market cycles. Mr. Drever first began purchasing apartment properties in Seattle in

the early 1970s when massive layoffs at aerospace company Boeing Co. ravaged the

city's economy. In 1987, amid plunging oil prices and employment, he bought

apartments in Houston. And in the early 1990s, Mr. Drever purchased apartment

properties in Phoenix from the Resolution Trust Corp., which had been set up by the

federal government to sell off assets of insolvent savings and loans. His strategy has


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been simple and consistent: Buy under performing well located properties at the

bottom of the real estate market in rebounding overbuilt markets, and reposition

them to take advantage of the forthcoming growing market.

Like other contrary investors, Mr. Drever has gotten in and out of markets based on

real estate cycles. He buys at the bottom of the market and sells at the top of the

market. During the Absorption Cycle in 1991, Mr. Dever began buying apartments

in Phoenix and Atlanta. He invested $100 million of his and investor’s money

buying about 18,000 units. As the market improved over the years through higher

occupancies and higher rents, Maxwell Drever sold his portfolio of properties six

years later for $678 million. Timing!

By using Supply and Demand dynamics to recognize real estate cycles, an investor

buying at or near market bottoms has many positive advantages. Should one buy

during the Absorption Cycle, they would benefit from sizeable pent-up Demand and

positive absorption where rents have big upside potential, favorable financing is

readily available, and capitalization rates are normally very high. So in essence, one

can buy properties with easy leverage from troubled owners where properties have

huge rent growth ahead on high cap rates that will be coming down as the market

improves. Thus, creating explosive growth in investment valuation in the first few

years coming out of the Absorption Cycle and into the New Construction Cycle. As

the old saying goes, “The trend is your friend”.

SUMMARY

Real estate cycles have a significant impact on the financial success and failures of

real estate investments because of their pervasive dynamic impacts on real estate

returns, risks and investment values. Because of this recognition, investors need to

place increased emphasis on the identification, analysis and decision-making

implications of real estate cycles.

It should be recognized that over a complete real estate cycle, most average

investors guess wrong a large percentage of time because they “gallop with the

herd” and follow conventional crowd wisdom. In contrast, successful investors that

consistently outperform the market average are willing to follow a path contrary to

that of the masses.

Thus, good timing and a degree of contrarianism are key ingredients to successful

investing that achieve above-market returns over a long period of time. Investments

must be bought and sold before cyclical trends are fully reflected in real estate prices

“We not only expect

cycles and market

aberrations, we feed

off them.”

Maxwell Drever


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and activity. An investor must be an independent thinker forecasting cycles and

acting ahead of popular opinion…buying when popular opinion is still negative and

most investors are trying to sell; and selling when popular opinion says the boom is

on and speculative investor buying causes asset prices to increase beyond economic

reason.

HIGHLIGHTS

The impact of cycles on real estate performance and wealth is dramatic. It

may be the most important strategic concept to deal with in the investment

world for investors who seek to maximize wealth, outperform the competition

and beat the market average, or even for investors who are happy to be average.

Cycles affect an investor’s acquisition and disposition strategies, and the

optimal holding period for each investment. The investor will develop

different optimal strategies for leverage, lease structures, capital expenditure

plans, and operating policies. For example, 1.) if an industrial market is “hot”

today but a downturn is expected in two years, leases can be structured seven-to-

ten year terms and designed to attract credit tenants who are not likely to default

during the downturn. Using this strategy, current high rent rates at the top of the

cycle can be locked in, allowing the investor to “leapfrog” the Market Saturation

and Down Cycle period. 2.) An investor might also refinance his low-risk

property at its “top of the market” value with a high loan-to-value non-recourse

loan with a ten-year term, then use the refinancing proceeds to establish a

substantial fund for use during a downturn when distress properties can be

purchased at distressed prices.

Investors must change their view of the world. The view must be away from

trends, “herd” mentality and toward a cycle view of the world…one that is

dynamic, constantly changing, never in equilibrium (except perhaps for an

instant), and where flexibility and a degree of contrarianism is important for

investment success.

Seek association with experienced investors. Investor’s who seek to better

understand the dynamics of real estate cycles and strategies that take advantage

of cycles, should turn some attention to individuals and entities who have

utilized successful cycle strategies in the past. Much can be learned from

successful entrepreneurial investors who have lived through numerous cycles

and who understand the dynamics of their markets.


- 19 -



ABOUT CRAIG HASKELL

Craig Haskell is author of, The Inside Game to Syndication Wealth and The Inside Game to Real Estate Value Investing, and founder of Value Hound Academy, a leading training and coaching platform for real estate professionals who want to start adding multiple streams of income and backend profits syndicating their own deals.

Craig works with real estate professionals who are not earning the type money they want, tired of the daily challenges of a strictly commission or salary based business, and are not achieving the goals they set for themselves.

Craig helps real estate professionals reinvent their businesses adding multiple streams of income and big backend profit syndicating their own deals.

As an inspiring leader and in-demand speaker, trainer and coach, Craig has helped thousands of investors and organizations around the world to become more successful syndicators of value add real estate to generate more fees and backend profits.

Craig has devoted over 30 years to syndication of value add real estate, and has owned or managed 79200 units and 2.8 million square feet of commercial space and provided advisory services on over $2 billion in value. Craig is also author of How to Take an Apartment Building from Money Pit to Money Maker, Secrets of Successful Apartment Buildings and A Guide to Creating Successful Apartment Advertisements.

As the creator of the Wealthy Syndicator Blueprint, a system for real estate professionals, Craig is the nation’s leading expert on the subject of syndicating value add real estate.

ABOUT VALUE HOUND ACADEMY

Value Hound Academy is a community of real estate professionals - agents, lenders, investors, managers and service providers - who are serious about syndicating their own deals to add multiple streams of income and big backend profits.

Here at the Value Hound Academy, we teach our members how to reinvent and transform their businesses to start building wealth syndicating their own deals. Members of the Value Hound Academy learn:

How to transition from service provider to syndicator How to leverage small group investments to fund deals How to become a Value Creator to significantly build wealth How to analyze a deal to determine profit How to get started setting up a new syndication profit center How to package deals and get paid How to raise money from investors

Become a free member today at www.ValueHoundAcademy.com


http://www.valuehoundacademy.com/public/Value_Hound_Blueprint.cfm

http://www.valuehoundacademy.com/

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