When To Buy Into Real Estate
Real Estate Markets, Confusion, and Investor Psychology
In the current, icy-cold real estate market, there are two schools of thought regarding when to invest. One school contends that it is the perfect time to buy, with the dearth of buyers and abundance of sellers keeping prices down. The other argues that prices have steadily crumbled for the last year, and may not have reached rock bottom yet. So what’s the answer? When is it a good time to buy into real estate?
The answer is right now. But wait, what if the market still has another 5% to drop before hitting bottom? That’s entirely possible, and anyone that says it’s not is either lying or a fool. But so what? Maybe the market is currently in the process of turning around, with a 5% immediate gain on the horizon? The point is, no one knows what tomorrow will bring for the national real estate market, which is an eternal truth that is doubly true in the current market that has baffled so many experts.
You could sit and try to perfectly guess the bottom of the market, and when it passes you by and starts rising, you’ll curse yourself for not buying in and STILL not act. You could still be waiting in five years from now for the “perfect” time to buy. So if you can’t accurately predict the bottom and buy at just the right second, how do you make a sound investment?
There are two strategies that allow you to succeed in the old Buy Low, Sell High model: buying wholesale allows you to Buy Low, and holding the property as a rental allows you to Sell High when the moment is right.
Buying Wholesale
The good news is that everyone and their grandfather are trying to sell right now, so prices are already low. The bad news is that this makes investors complacent about deal-hunting, because everything looks like a good deal.
You still want to find a good deal relative to the existing market, so forget your ideas about what housing “should” cost in your area and only think about what it DOES cost currently. One possibility is to buy through a professional wholesaler, who generally make their living by buying deeply discounted properties and flipping the contract at a shallow discount (e.g. they put a $50,000 house under contract for $25,000, and sell it to you for $40,000). It is possible to get a good deal from wholesalers, but be extremely careful, because every single one of them will tell you they’re doing you a favor and offering you that property at a near-loss for themselves, while trying to sell it to you for as much as absolutely possible. Negotiate, negotiate, negotiate. As a final note on wholesalers, you can find them by calling the numbers listed on “We Buy Houses” signs, or by contacting hard money lenders, who are either wholesalers themselves or know many of them.
Alternatively, you could try to find those deep discounts yourself, but it’s easier said than done. The most effective way to find these deals is simply to develop an enormous network of contacts from all walks of life, from contractors to neighbors to fellow investors to your own tenants, if you have them. Deals will come your way sooner or later, but you’ll have to keep your ears open and your rolodex full.
Rent it Out = Wait it Out
By buying low, you ensure that your monthly expenses will be low, allowing you to sign a rental agreement with a tenant for a healthy monthly cash flow. If the market doesn’t turn around for another two years, so what? Another five years, so what? You’ll be making money as a landlord, and every dollar you have to invest in maintenance, repairs, etc. is tax-deductible as a business expense. When the time comes when the market overheats again, you’ll be poised to make a small fortune by Selling High.
Or, if you enjoy the money that little rental agreement hauls in every month, you can keep the rental property forever, and allow your tenants to pay off your mortgage!
Sure, the real estate market is icy right now. So what? Buy in, hunker down with a rental agreement, and sit tight allowing your tenants to pay your bills for you. When the market turns, you’ll find yourself with some sizable real estate assets.
