Question

The following graph represents real estate prices in a given area over a period of 28 years.
A graph titled Prices. From year 0 to 4, the graph increases; from 4 to 6, decreases; from 6 to 8, remains steady; from 8 to 10, increases rapidly; from 10 to 18, decreases; from 18 to 20 increases; from 20 to 22, decreases; from 22 to 28, increases.
Using the above information, which kind of investor would likely turn the greatest profit in this market, given that each of them purchased a house in this area at year 0?
a.
A long-term investor, who wishes to hold onto the house for an extended period and rent it out in the meantime.
b.
A house flipper, who will sell the house as soon as the market increases its value.
c.
A moderate-term investor, who will sell the house once it reaches a certain price.
d.
A cautionary investor, who will sell the house in order to minimize losses as soon as the prices begin to drop.

Answer 1

a. A long-term investor.

Reason: the price ends on a long upward trend (years 22–28) after several cycles, so holding through downturns and renting yields the largest eventual gain. Flippers or cautionary sellers lock in smaller/earlier gains or avoid later gains by selling during drops.