Recovery phases – Will you join the herd?

Brett Alegre-Wood
July 6, 2009

Will you be a sheep or a Wolf?

Just thought I would share with your something I learnt a long time ago about recovery from recessions. Sadly, I have left this a little late but you still have ample opportunity to take advantage of its lesson.

You see when the economy recovers, and let's just talk about the property market (rather than the wider economy), when the property market recovers you will see three recovery phases. Each of the phases will blend into the next so it's not a case of if you miss one you will lose, in any of the phases you will make money, it's just the earlier you get in the more money you will make, but only if you are thinking long-term. If you are thinking short-term then you are probably best to wait until the last phase has kicked in.

So let's look at each phase in turn:

Phase 1 – The Smart Money

This is the smart, experienced, non-emotional property investors who see fundamentals and who see that asset prices have dropped and affordability is now at a much more reasonable level. They are the first people back into the property game and often they are the ones who have the cash ready to invest. They make ridiculous offers, far beyond what most people would even consider. The funny thing is they tend to get these offers accepted. This stage is a buying frenzy, there is little competition, little demand. They have a very clear eye on fundamentals rather than sales hype. In fact, by this stage of the downturn most of the sales hype is gone, it went bust ages ago. Now is the time that the smart money makes huge money.

Phase 2 – The Institutional Investors

This is the phase when the smart money is still trading, still making fantastically low purchases but now the competition returns, albeit at a low level. The competition comes because the institutional investors (pension funds, hedge funds, large multi-national investors) begin to see that asset prices have dropped and the affordability is returning, there will be some hints of ‘green roots' of recovery. Also the institutions whose money has been in safety mode (corporate bonds, cash, government debt) needs to make up some of the losses and produce some gains for their frustrated and disillusioned investors.

At this stage the news will be reporting about specific funds that are forming to buy up distressed assets and the overall market will begin to look better. Supply of property will still be very low but off plan property will begin to be talked about although initially the masses will be very negative because they have just been burnt from buying off plan property in the wrong market. The masses will still be very skeptical and have very little interest.

Phase 3 – The Herd

This is the stage at which the masses finally wake up and jump back into property. Very quickly things will take off and capital values will begin their upwards spiral. This is the time when demand has returned, supply initially will still be low but eventually the smart money and institutions that bought off the plan property will be completed and supply will return.

I call this “the herd” because this is where the masses of uneducated people simply follow what everyone else is doing. Simon (he's a Kiwi) would call them ‘the sheep', they follow the ‘shepherds' (aka. smart money).

The important thing to remember is that whatever you do throughout these three phases you will make money if you hold the property. The first two phases you will not necessarily be able to sell your stock but in the third phase you can freely sell and take your profits.

Recovery arrives…

By the end of these three phases property will be the most admired asset and every TV show will be showing you how to renovate, buy, sell, flip, swap or any other thing that producers can come up with to do with and make money from property.

Just the other day I met with a TV production company about creating my own TV show. Already they are preparing the shows for the next property boom.

So my question to you is this

Are you going to part of the herd? or Are you going to jump in and get involved at the smart money, institutional money or the herd? Whatever your answer, there's money to be made in property. If you aren't 100% sure how to then simply call the team on 1300 533 713 or direct on their mobiles.

Live with passion,
Brett Alegre-Wood


UK Property Investment, UK Property Investment

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