Cycles are important, but in reality if you buy right, your real estate will do well, regardless of where in the cycle you bought. But if you are just starting out, buying right may not be as intuitive to you, so understanding the real estate cycle becomes golden knowledge. The following diagram shows the typical commercial real estate cycle and how it affects new construction and vacancy.
Let's walk through each quadrant. In Phase 1, the lower left quadrant, the market is in recovery phase. There is declining vacancy and no new construction. You know the market is in this phase when there is some growth in the market indicated by properties being rented and properties being sold. This uptrend can, and often does, last a long time, years in many cases. That's why I never feel like I need to rush into an investment. I also don't like surprises, so I generally let the bigger guys make the first leaps during this phase. Then I make my moves with solid knowledge that we are solidly in Phase one—the buying phase.
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