Thread by @austinschless

0/ The housing market is bound to crash

Why?

Let's dive in...

Thread👇🧵

1/ I am looking to purchase my first rental property

I have been documenting my progress in this thread👇

https://twitter.com/austinschless/status/1357307265326469124?s=20

I have been pretty persistent with taking the steps to purchase my first property until I read this

2/ The other day, my friend @MikeKedrec suggested I check out the 18-year property cycle

The 18-year property cycle is the theory that the housing market goes through 18-year cycles - hence it is somewhat predictable

3/ Understanding the 18-year property cycle will help you understand:

1. Why property prices always go up in the long run
2. Why prices won't go up in a nice straight line - it is more volatile
3. Why you should ignore what the news says about property prices

Let me explain👇

4/ Why is there a property cycle?

Supply and demand work in tandem to keep prices stable over time

The thing is, this DOESN'T apply to property

Why?

The amount of land in existence is fixed...unless your name is @elonmusk and you plan on colonizing Mars

5/ In short, there is no mechanism to pull prices back down

Land prices will increase faster than wages and the price of goods

This related to Ricardo's Law of Rent which explains why rents account for an ever-larger share of the economy over time

6/ Economist Fred Harrison was one of the first people to identify the existence of the property cycle

Since then, the 18-year property cycle has been a well-studied theory for all property investors

7/ There are 3 stages in the cycle

1. 🤕Recovery phase
2. 🤯Explosive Phase
3. 😰Recession Phase

8/ 🤕Recovery phase

1. prices bottom out after a recession
2. rents stay the same
3. brave investors take risks
4. amateur investors stand on the sidelines
5. buyers gain confidence in the market

Ex: Growth in house prices in 1993-2000

9/ 🤯Mid-cycle dip/Explosive phase

1. mid-cycle dip
2. companies and pension funds begin to invest
3. prices go up
4. banks begin lending
5. people keep on buying - no end in sight

Ex: Wobble, then rapid growth in 2001-2007

10/ 😰Recession phase

1. more buying - the winner's curse
2. prices rise
3. people start selling
4. overleveraged go bankrupt
5. prices plummet

Ex: Decline in the market in 2008-2012

11/ So how can you profit from the property cycle?

2 ways...

1. Buy and hold for 20 years
2. Time the market

Easy enough right?

12/ Buy and hold for 20 years

Prices will go up in the long run. They will be volatile, but they will increase over time.

Follow these 4 rules:

1. Don't panic
2. Don't overleverage
3. Don't get carried away
4. Don't get fooled by the media

13/ Time the market

Now that you know the 18-year cycle, do these 3 things:

1. Be a seller when everyone is buying
2. Be a buyer when everyone is selling
3. Stockpile your cash when things are "too good" - during the winner's curse

13/ Bottom line, a crash is inevitable. At some point in time, prices will plummet.

1. Hold your investments over time for maximum returns
2. Be strategic about when you buy and sell

14/ If you enjoyed this thread, follow me to follow my journey to purchase my first rental property.

Find all rental property related threads/tweets in this metathread👇

https://twitter.com/austinschless/status/1357307265326469124?s=20