Part I

Key Message

The Real Estate Cycle: Your Key to Strategic Investing

To swim a fast 100 meters, it's better to swim with the tide than to work on your stroke.

—Warren Buffet

Beginning in 2006, real estate values started falling in many countries around the world. It was not the first downturn in real estate, nor will it be the last. Yet this decline, like every one before it, appeared to take millions of homeowners, investors and developers by surprise, leaving many in financial ruin. Once again, we were reminded of the cyclical nature of the real estate market and the fact that fortunes are made and lost over the course of a cycle. In real estate, creating and sustaining wealth is highly dependent on the individual investor's knowledge of how the real estate cycle works.

It is surprising that even some of the most experienced investors are unable to read the real estate cycle. Experienced, but non-strategic, these investors lose much of their real estate wealth unnecessarily. Indeed, history is littered with examples of formerly successful real estate investors who failed to respect the cycle, or disavowed it altogether, which cost them real estate wealth that was the product of hard work and sweat equity.

Conversely, history also shows examples of investors who have learned how to grow and sustain wealth through the entire cycle of boom, slump and recovery. Known for the purposes of this book as strategic real estate investors, these individuals invest with a purpose and use the momentum of the real estate cycle to help grow their wealth. They make money while the market is on the rise, and they also profit during a falling or flat market. They have a distinct mindset compared to other investors, all because they base their goals, strategies and tactics on the realities of the real estate cycle.

The Making of a Strategic Real Estate Investor: The Five Essential Elements

The ability to invest strategically is not a skill that most investors possess. The good news is that it is a skill that can be learned. As the real estate cycle changes, strategic investors are able to make decisive and proactive decisions. Where less strategic investors react to cycle shifts, the strategic real estate investor continues to follow their strategic system because he or she knows how to use the momentum of the real estate cycle to create wealth. Through their own investing experience, as well as through coaching and mentoring thousands of other investors, the authors of this book have observed first-hand the makeup of a strategic investor. As shown in the figure above, a strategic investor's approach to investing in real estate consists of five essential elements, with each element building on the foundational strength of the previous one.

The Five Essential Elements of the Strategic Real Estate Investor

Although the Five Elements of the Strategic Real Estate Investor are best expressed as a pyramid, with “mindset” forming the foundation, we stress that strategic investors use all five elements holistically. That is, each level is interdependent. First, strategic real estate investors require the right mindset, which leads them to actively research and learn about the real estate cycle. Building on that foundation, they set their goals and strategy in conjunction with the cycle and, finally, choose their tactics. That final step is critical as it implies that strategic investors take real market action.

Here is a closer look at what each level of the strategic investor pyramid tells us, and an explanation of how this book will help you use that information in your own business. (Learn more about the pyramid and strategic investing in Part III.)

Mindset: It is no accident that mindset is the essential base element of the strategic investor pyramid. Mindset is the foundation for understanding real estate cycles, and strategic investors have a very distinct mindset: they think differently than other investors. They think strategically. As you read this book, you will learn how to think and invest strategically.

Real Estate Cycle: Investors who are serious about using the real estate cycle to their advantage must acknowledge that the cycle exists, and commit to understanding how it works. Strategic investors learn what drives the cycle and the proven theory behind its movement. Kieran Trass is an international real estate cycle expert and has spent the last 20 years dedicated to the subject. This book uses his methodology and provides his proven process to help you determine the position of your local market in the overall cycle. You will learn how to identify the critical transition points in the cycle through case studies of Canadian cities. We also provide you with specific examples for Calgary and the Greater Toronto Area so you can see how the cycle works in real market conditions.

Goals: Most investors are objective-oriented and take the time to set goals. Strategic real estate investors also set goals, but do so with the cycle in mind. Secrets of the Canadian Real Estate Cycle: An Investor's Guide will teach you how to set realistic objectives that correspond with how the investing environment changes throughout the cycle.

Strategy: Some business people, including real estate investors, like to talk about various money-making “strategies.” Strategic investors use only one strategy to create and sustain wealth through entire real estate cycles. It is known as the ABC Strategy, and this book will teach you what it is and how to use it.

Tactics: The strategic investor does not confuse tactics and strategy. Strategy informs the master plan. Tactics are the steps you take and tools you use to achieve the goals in your master plan. The investment tactics employed by strategic real estate investors will vary depending on the stage of the real estate cycle. You will learn a variety of tactics, along with the optimal times to use them throughout the cycle.

What Lies Ahead

Think Strategically (or Stay Home)

There are hundreds of books that teach you how to invest in residential real estate, and it's likely you have already read a few of the better ones. Some of those books mention the existence of the real estate cycle. But very few are dedicated to the real estate cycle itself, and even fewer combine information about how the cycle works with solid information about how to use that information to become a strategic real estate investor. This book is different. It will teach you about real estate cycles, provide in-depth information about all of the essential elements required to become a strategic investor and show you how you can acquire those skills.

By the end of this book you will be thinking strategically, and better yet, you will be investing strategically. And, when you do, you will be reducing your risk and increasing your results.