Everything moves in a cycle. The economic history of the world often follows a fairly predictable cycle. This cycle has some very important landmarks.
There comes a time of great prosperity and rapid growth which after a period begins to slow and ultimately crashes, leading to a recession. The recession is then followed by a period of gradual activity and stability leading after some years to another period of great prosperity. Your ability to recognise this pattern and utilise the right strategies will often lead to great growth and prosperity.During periods of economic prosperity and because the economy is awash with money, it is easier to borrow money. Banks and individuals often have enough money and are willing to lend more. In order to buy a property, you may even find it easy to borrow 80-95 per cent of the value of the property or to secure a loan without adequate collateral. It is a time when many people buy things without deep analysis and thought. I believe many people can associate with this period in Nigeria. We have experienced a sudden boom in our stock market, businesses and real estate sector. We have also experienced the recession. When times are tough it is not easy to access loans as conditions become more stringent and both banks and lenders are more interested in security of funds rather than multiplication of funds.
To secure a mortgage, you may be required to contribute as much as 20-30 per cent of the required fund. Also, because of the fall outs of economic recession such as loss of jobs and closure of businesses, people are not eager to spend. Companies and individuals downsize in order to survive and weather the economic storm. The fact of life is that things do turn around. Economic recessions do not last forever but you do need to understand strategies and acquire skills that are suitable for both periods.
One key strategy in real estate boom time is that you should know what to buy and know when to sell. Many years ago, one old investor shared with me how he made his millions in real estate. One of his properties was located on a busy street and he was approached by a bank to lease or sell the property. He had no intention to do so initially because it was his residence but when they kept increasing the price he reconsidered his decision. He knew the lease amount he was being offered was significantly above the market value. He leased the property at a very good price to the bank, bought a smaller property in a quieter part of town, and re-invested the balance. It all worked well for him and today he has become a multi-millionaire.
The take home is that during boom time, if you get an offer that is far in excess of the market value of your asset, consider selling because the boom time will not last forever and when it does end over priced property values will be corrected by the market and you may lose an opportunity to make some extra money.
This reminds me of a person whose property was valued at N40m and suddenly it experienced the effect of the boom by rising to about N70m within a year. He had two detached houses and was considering selling one. He hesitated, expecting the value to go higher. Unfortunately, the market corrected itself and the value fell by over N20m. It has taken two years since then for the property to regain the same value.
However, during period of economic recession take note of two rules. First, if you are really not under pressure to sell your property, hold on to your undervalued property and make up your mind to weather the storm because it will regain its value and continue to appreciate. And if you have a little bit of money to spare, begin to buy undervalued properties and hold them. Whenever the market picks up again, you have already positioned yourself for prosperity.
During downtimes many bargain sales come from individuals in need of urgent cash and lenders who are eager to recover their money from distressed borrowers. There have been instances where properties were sold at about 40 per cent less than their actual value. Presently, in many developed nations of the world, the real estate market has lost significant value thereby creating a window of opportunity and prosperity for those with spare cash to invest. Also during periods of recessions, organisations and individuals are more open to flexible payment plans such as paying in instalments.
The lesson to note is that when you understand the times and the appropriate strategies to use, you can prosper and consistently build wealth in good and bad times.The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .