In this concise lesson, Jason Hartman categorizes every real‑estate market worldwide into three archetypes—linear, cyclical, and hybrid—to simplify investment analysis. He defines each type using a price‑versus‑time graph: linear markets show a smooth, gradual appreciation; cyclical markets exhibit dramatic peaks and troughs like a roller‑coaster; hybrid markets sit between the two with moderate fluctuations. Hartman argues that most of the planet’s markets are linear and therefore the safest for investors, while cyclical markets dominate media attention but attract gamblers and speculators who rely on extraordinary events for returns. He introduces his proprietary metrics—Land‑to‑Improvement (LTI) ratio and Rent‑to‑Value (RV) ratio—as diagnostic tools, noting that cyclical markets typically have poor LTI and RV ratios. Geographic examples illustrate each type: U.S. West Coast, Northeast, South Florida, and Hawaii as cyclical; London, Hong Kong, Dubai, Paris, Singapore as “trophy” (cyclical) markets; Phoenix, Denver, Austin, and a transitioning Atlanta as hybrid. The lesson concludes with a call to focus on linear markets for reliable, conservative returns, reinforcing his “thou shalt not gamble” commandment from his 10 Commandments of Successful Investing, and invites viewers to subscribe and explore his podcast and website for deeper insights.
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This will be a very quick lesson today as we talk about the three types of real estate markets. Yes, you can break down the entire planet, all the world, into just three types of real estate markets to make it very easy. There are very big differences in markets, of course, and there are a lot of pundits that are on the air. You see them on television, you read about them in the various media, and they try to lump a country or a state or even a city into one type of market. And of course that is completely impossible. The old saying in real estate, you've heard it before, I've said it to you many times. All real estate is local, all real estate is local. And so then the problem becomes, you know, do you break things up into cities and states and communities, neighborhoods, micro, macro, whatever? Right, Too complicated. Let me just simplify it for you into the three basic types of real estate markets. This will be very helpful because it applies all over the world, not just in the U.S. not just in the state in which you live, but all over the world. So, number one type of market, linear real estate markets. Linear markets. Now what does that mean? Well, as the name would imply, linear is a line, right? And the linear market, if you're looking at a graph and you've got value on one side and time on the, on the other axis, and you look at that graph and you look at the price appreciation of that real estate over time, it simply is a very smooth line. It has minor ups and downs, minor ups and downs, but overall it's fair, fairly consistent. It just kind of goes up gradually over time. The next type of market, which is the opposite type of market, is a cyclical market. A cyclical market. Linear, cyclical and hybrid. So a cyclical market, as the name would imply, cycles, right? It cycles up and it cycles down. Think of it like a roller coaster ride, right, where you have these glorious highs as you get to the top of the hill and then these very scary declines down, right? So if you're looking at that same kind of graph and you look at it over time, the cyclical market will have big highs, very newsworthy highs, by the way, and really ugly lows, really bad troughs. Peaks and valleys. Peaks and troughs, right. Whatever you want to call it, it's an up and down type of market. Now, the vast majority of markets that you hear about and the vast majority of markets where your attention is directed, cyclical markets. Why is that? Well, they're very newsworthy, aren't they? They're interesting. A lot is happening it's like a soap opera. You know, the media has this old saying, if it bleeds, it leads. And they like sensationalism, right? Remember that old Don Henley song? You know, the bubble headed bleach blonde comes on at 5, she'll tell you about the plane crash with a gleam in her eyes, you know, dirty laundry, right? It's sensationalism, it's gossip, it's, it's interesting, right? The cyclical markets get all the attention, but they shouldn't because they're really not the best markets in which to invest. The people working in those cyclical markets who think they're real estate investors are really gamblers, they are really speculators. They are betting on something incredible happening in the future. Now you know about my commandment number five in my 10 Commandments of Successful Investing. Well, what does commandment number five say? Say? It says, thou shalt not gamble. Thou shalt not gamble. Because you want the property to make sense the day you buy it. You don't want anything extraordinary to have to happen for you to make a nice return on your investment. Okay, so linear, cyclical. Now let's talk about hybrid. Hybrid, as the name would imply, is in between the two, right? It's simply in between the two. So you're looking at this graph and on one side you've got value, and on the other axis you've got time. And through time, that hybrid market has ups and downs that are more pronounced than the linear market, but less radical than that cyclical market. That's the hybrid market. It's the in between. So let's look at some examples of these, not only around the US but around the world. First thing to know, most of the world is a linear market. Most of the world is a linear market. Most of planet Earth, you know, it's what, 25,000 miles in circumference to go around the world. It's 7,000 miles and something in diameter. You know, diameter times PI is circumference, right? You remember that from geometry, okay? So you go around the world and most of it is linear. Most of the real estate markets on planet Earth are boring. They're linear, right? Linear markets are boring. And linear markets are the markets that I really want you to pay attention to because I say those markets have the safest, most prudent, most conservative and most reliable return on investment. Okay? Now you can gamble a little bit, you can speculate a little bit, but remember, you do that with money you can afford to lose, okay? You can afford to lose it because in all my years and almost 10,000 real estate transactions that I and my companies have been involved in over all these years. I started when I was 19 years old, in my first year of college in real estate. And I have never met anybody who can reliably predict appreciation cycles. So those cyclical market people, they are the gamblers, they are the speculators. They are waiting for something extraordinary to happen before they can make a good return on their investment. Okay, so Jason, what are the cyclical markets? We know most of the world is linear, right? Most of the world's a linear, boring market. Cyclical markets, the ones that get all the attention. Well, the west coast of the United States, all the way from San Diego up to Seattle, and pretty much everything in between is pretty darn cyclical. Glorious highs, really ugly lows. Okay, cyclical markets, the expense of northeastern markets, New York, Boston, Washington, D.C. some of the expensive areas of Connecticut, for example. All of those markets. Cyclical markets, South Florida, Miami, very cyclical market, glorious highs, really ugly lows, really scary lows. And what happens when you go around that'll pretty much sum up the United States? Well, I forgot about Hawaii. You got to mention Hawaii in there. Of course, most of Hawaii, where we just had a mastermind retreat, one of our conferences there, we did two events there recently. Most of Hawaii would be considered a cyclical market. How can you tell if they're cyclical, by the way? Well, number one, they're in the news a lot. Number two, they have very bad LTI ratios. Now the LTI ratio is something that I invented. That's one of my trademark terms and that stands for. Well, before I tell you, you've all heard of LTV ratio, probably, right? What does that mean? It means loan to value ratio. So when you're financing a property, you know, they might give you an 80% LTV or 80% loan to value, right? But LTI ratio, the, the one that I came up with is because it's very important to notice the value of the land versus the value of the improvement. The structure sitting on the property is the improvement. That could be the house or the apartment building, or it could be an office building or a retail center or whatever. That's the improvement. So you want to know the land to improvement ratio. And on a future video, when I talk about the Hartman Risk Evaluator, where you can virtually avoid high risk real estate investments by simply following my simple formula. Right. I will discuss the LTI ratio in greater detail, but suffice it to say that cyclical markets Always have very bad LTI ratios, land to improvement ratios. They also have very bad RV ratios. Another one of the things I talk about a lot, and that is simply the rent to value ratio. We'll have another video on that as well. Okay, so most of the world's linear. Some of it's cyclical. We reviewed the cyclical markets in the US all those newsworthy markets. You're hearing about them all the time as they have incredible appreciation rates and very ugly depreciation rates. Well, what about around the world? London, cyclical market, Hong Kong, Dubai, Paris, you know, Singapore. All of these very. All of these trophy markets. Right. We'll call them the trophy markets. That's a good way to look at it. If it's a trophy market, a place that you want to visit, right, A famous city, it's probably a cyclical market. And simply by going online or visiting there or talking to real estate people there, or even not real estate people, just homeowners, you can tell it is a cyclical market because the land will be incredibly expensive and the value of the improvement as a percentage of the overall value will be very low. That's the LTI ratio. Let's talk about hybrid markets. Those markets that are in between the two, right? They're not linear and they're not cyclical. They're just in between. Okay? So hybrid markets would be places like Phoenix, Denver, Austin. Okay? Atlanta used to be a linear market. Now it's kind of a hybrid market because it's appreciated quite a bit. And those markets, you know, they're just in between the two. That's really all you need to know. Okay? They're not crazy. They're not Los Angeles, they're not Seattle, they're not San Francisco, they're not New York City. Okay? But they're not Memphis and they're not Little Rock and they're not Indianapolis either. They're in between the two, as the name would imply. So that's the lesson for today. Let's wrap it up. Linear, cyclical and hybrid markets. That will give you a giant advantage in the marketplace as a real estate investor. Be sure to subscribe to the channel for more great videos where we will explain lots of stuff and check out my podcast on all the major podcast platforms. Just search Jason hartman or visit jason hartman.com for more. Thanks for listening and happy investing. Sam.
