Lessons from Property Boom and Bust Cycles

I started investing in real estate in the early eighties when there was a property boom.

There were no books or seminars in those days. My adviser was a real estate agent who virtually pushed me into buying my first investment property because he wanted to make a commission. I am glad he did that to me because unsuspectingly he set me on to a path of wealth creation through property investment.

They say property cycle repeats itself every seven year. But things in life do not work as predicted. There was a bull run in India for nearly two decades starting in the late seventies. I rode the property boom and made easy money.

During the bull run everyone in my family and friends thought that I was some kind of a property genius. Even strangers sought my advise and I distributed my ignorance freely without realizing it. Even I fooled my self into believing that I was a genius.

I now realize that I was just a street smart investor in those days with little or no knowledge. I simply rode my good luck and external economic circumstances aided my good fortune.

The property bull run halt in 1999. Prices nose dived by around 20% to 30%. I must confess that I was totally confused and unprepared when the property market crashed. The down turn lasted close to 4 years.

My real education in real estate started with the pain the down turn caused me. Before that I was a dare devil cowboy who rode the property boom. The only good thing I did in my fool hardy days was that I continued to buy property.

When the market nose dived I froze. I was totally unprepared for it. Not only did my net worth go down but I lost some of my tenants that effected my cash flow. To reduce my risk I sold few of my assets to pay off my mortgage. I even sold my house to have cash in hand.

In hind sight I should not have panicked. With little imagination I could have easily held onto my properties. I had plenty of cash but did not buy a single investment property during that period of 4 years. My cash just sat in the bank earning 5% interest giving me false sense of security.

In mid 2003 the markets turned around and property prices grew for the next 4 years by 60% to 70% every year. This is the strange way in which markets behave in India because of the population pressure. The house that I sold in April 2003 quadrupled in value in 3 years.

Why I am narrating my story is because had not the fear factor frozen me into inaction during that depressed period I would have increased my net worth by at least three times. I lacked the knowledge to invest in the down turn market when the money is really made.

One good thing about pain is that it opens your brain centers and increases the understanding of life . I became an avid reader, attended seminars and filled up gaps in my learning. I was amazed to learn about the depths of my ignorance.

The knowledge that I gained has served me exceedingly well during the property crash of 2008 - 2009. I am comfortably placed because I concentrated on buying high cash flow properties below market value in good areas.

This time around I have the capacity to reduce rents and keep my properties tenanted. I am also cashed up to buy properties at a discount with foreclosures at their peak.

I did not allow the bull run of 2003 - 2007 to get into my head. I was patient and purchased sensibly. Period of property boom hides our ignorance and gives us false confidence. All the warts get exposed during the downturn. You become an expert when you have the knowledge to invest during the bear phase.

Knowledge as always is the key to success in real estate investing. You make more money during the property downturn cycle. When there is property boom there is simply too much competition to buy half decent real estate.

Praveen Kumar
Real Estate Investment Adviser

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