Winter 2010-2011, Vol. 35, No. 3

Abstract: In this article, the authors use real estate and economic cycle information to simulate portfolio returns based on a series of buy/sell strategies, and then compare these results to simple, long-term buy and hold returns. Buying and holding from 1980–2009 produced annualized total returns of 8.18 percent, which is economically significant. Buying after recessions, but liquidating at preset times in the future, produced highly variable returns with no discernable pattern. By strategically timing entry and exit based on macroeconomic and real estate cycles, investors can earn approximately 200–300 basis points more than with a simple buy and hold strategy. Investors do not need to be exact with their timing to earn excess returns, which is critical in that it is unlikely that investors can precisely time the markets. Finally, proper use of leverage is critical; having too much leverage and/or being subject to a forced exit time can cause default during a downturn and prevent investors from enjoying an eventual recovery.