Like all investments, real estate experiences its cycle and over the years has become somewhat predictable. The real estate cycle is a direct result of overall economic activity (increased hiring creates a greater need for housing and office, more people shop, etc.) and therefore tends to follow a similar cycle to the general economy.

However, real estate usually lags behind the broad economic cycle due to the nature of the asset: real estate fundamentals tend to stay strong for some period at the beginning of a general economic downturn and tend to stay weak for some period even after the economy has recovered.

This is because decisions made about real estate (building a building, signing leases, etc) are more long-term in nature, and therefore decisions are made well in advance of actual construction or move-in.

Real estate requires large amounts of capital because it’s, well, large. Be it buildings or land, houses or factories, purchasing and operating real estate takes significant amounts of capital, including substantial use of debt.

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