Is There a Right Time to Buy Real Estate?

by Krantcents · 46 comments

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The real estate market is booming.  Some prices are up to pre bubble prices.  Is it too late to buy real estate?  The short answer is no!  My theory is prices are always higher than you like it.  If you are one of those people who are looking to buy at the bottom, you missed your chance!  Interest rates are the lowest in sixty (60) years.  What are you waiting for?

Real estate is no different than the stock market.  It goes through corrections or cycles.  It would be great, if real estate values would always go up, but it doesn’t.  The most recent real estate bubble was artificially created with relaxed credit policies.  Housing prices increased because of demand, speculation, low interest rates and easy lending policies.  What has changed?  Lending policies has tightened up considerably and demand continues.

In the stock market, you can always find an undervalued stock.  I believe you can find undervalued homes or income property in a rising market.  You should approach it similar to finding undervalued stock.  When you are looking for undervalued stocks, you might start with a list of stocks.  You may put them through a stock screener based on your financial criteria. You perform analysis based on research to determine value.

It should be no different with real estate, however buying a home is an emotional purchase.  It doesn’t have to be!  When you go to a real estate broker, they will qualify you.  What can you qualify for in terms of a mortgage?  Do you have a down payment?  What are your needs in terms of location, size or number of bedrooms, etc?  When I bought my first home, I used value investing criteria although there is always an emotional component to buying a home.

When I bought my first home, I could have fallen into the usual routine.  Instead, I found a broker (friend of a close friend) who listened to what I was looking for.  I was looking for something undervalued!  I had the cash, credit and willingness to do it.  I did not mind a fixer or distressed property as long as I could see value.  I ended up with a home that was 25% below value for the neighborhood.  It was a divorce sale and a fixer.  It just needed cosmetic repairs and replacement of carpet and drapes.

Having some financial criteria gave us parameters that kept the emotional side of buying a home in perspective.  It is just as easy in fall in love with a home that meets your financial criteria as it is to just fall in love with any home.  It had to meet both otherwise it doesn’t make sense!  Matching both made it a win/win!  How do you apply this value investing principles in today’s market?

There are still bank owned homes, foreclosures, short sellers and homes that are underwater.  There are less today than there were several years ago, but you are only looking for one.  I think it is always good to look for the undervalued home in a good neighborhood.  It may have deferred maintenance, needed repairs or remodeling.  Does it make sense to invest more money to see its value?  This is the criteria for flipping a home.  I am a value investor not a speculator!

Finding income property that is undervalued is a bit harder.  I was start with the broker first.  Real estate brokers hate first time buyers because they have to spend more time educating the buyer.  Learning the lingo and what is involved is very important.  This is no different from buying stocks!  You need to do the research and learn about the stocks.  You should learn all you can about income property before you talk to your first broker just like learning about stocks before you make your first trade.  What is next?

Start with the broker!  Interview them and find one you can work with and understands your goals.  It may take some time.  I interviewed thirty-five (35) brokers before I could find one that would work with me and I felt understood my goals.  This broker is important because he/she will negotiate for you and you need to trust him/her.  This is a longer range relationship than the occasional residence purchase.  Doing the front end research pays off handsomely later.

Final Thoughts

Whether you are looking for an undervalued residence or income property,  you want to have a set of financial criteria before you start looking at property.  In a good or bad economy, finding undervalued property is not easy.  It may be easier when the supply of homes were high and no one was buying.  You still need to go through the properties and make sure it matched your financial criteria.  You still need savings for a down payment and good credit.  That makes the search easier because you can qualify for the lowest interest rates. Real estate is the largest component of wealth and has been estimated to represent approximately one-half of the world’s wealth. Real estate is still a good investment for the long term!

Photo by:  David Paul Ohmer

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Finance Carn. for Young Adults at WILDaboutFinance
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Real estate is still a good investment for the long term!

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{ 44 comments }

Mrs. Pop @ Planting Our Pennies May 16, 2013 at 3:45 am

I think there are times when it’s easier to find undervalued real estate than others. 3 years ago, it was a walk in the park to find properties that needed some TLC to be cash flow positive, now… asking prices on fixer uppers are such that if you did an 80/20 on the house, the net income from the house would be negative for nearly the first decade of ownership. =(

Krantcents May 16, 2013 at 7:27 am

Yes, sometimes it is easier than others. I think you always have to look for the right property to buy. At the market low, I would not want to wait with the hope of the bank approving my bid on a foreclosed property. Timing is everything!

Jacob @ My Personal Finance Journey May 16, 2013 at 5:58 am

Thanks so much for the mention!

Krantcents May 17, 2013 at 1:09 pm

No problem!

My Financial Independence Journey May 16, 2013 at 6:54 am

My current lifestyle simply doesn’t need me to be a homeowner. At some point, things may change and I’ll wind up needing a house. But I have no idea if that will occur when the market for houses is up or down. I’d probably try to search for value, but I think it would be hard. There are too many variables in buying a home.

Oddly, I’d be much better at hunting for value with an income property. Because then it’s just an investment and all the emotions are taken out of the picture. And I’m not living there – so all that matters is whether other people will want to live there.

Krantcents May 16, 2013 at 7:31 am

Although most people buy a home first, there is nothing wrong in investing in income property. It is a great hedge against inflation and a wealth builder/

Pauline May 16, 2013 at 9:44 pm

I bought a rental first because I had a mobile lifestyle but wanted in on the property market. Real estate is one of my favorite investments and even if prices are high, as long as rents can cover the mortgage I would invest since you can get leverage for your purchase.

Krantcents May 17, 2013 at 7:24 am

Real estate should be part of everybody’s portfolio. Rental property is a great way to hedge against inflation.

Mike@WeOnlyDoThisOnce May 16, 2013 at 7:12 am

A first house, I think, should be purchased for its value specifically to the buyer, as long as it is a sound investment.

Krantcents May 16, 2013 at 7:37 am

Value means different things to people. I think a first home is probably a starter home which has intrinsic value. There is always demand for starter homes.

John S @ Frugal Rules May 16, 2013 at 7:21 am

Great correlation between the stock market and the housing market. I do think that it is still possible to find those good values, though it might take more work at times. If our local market is any gauge of what is going on elsewhere, prices are back on the uptick and houses are starting to sell quicker.

Krantcents May 16, 2013 at 7:38 am

In most cases, it is due to a low inventory of homes for sale. In southern California, prices are back to pre bubble days in many areas.

Thomas @ Debt Repayments May 16, 2013 at 8:00 am

You are right in that we are always looking for the lowest and cheapest and by the time we think we can get it its too let. I always look at the location of the home and the surrounding homes in that neighborhood. There are a lot of homes but too many are worrying about prices from a few years ago. That time has passed.

Krantcents May 16, 2013 at 8:25 am

I would go with the cheapest house in a good neighborhood. I tend to look for a reason to sell me the home at a lower price. It may need cosmetic work or more. You may have to look harder and be more patient or look where no one else is looking.

Jenny @ Frugal Guru Guide May 16, 2013 at 8:20 am

Our neighborhood is severely undervalued because we had a LOT of foreclosures (1000-square-foot houses were at one point selling for $750k, and larger houses were judged to be worth over $1 mil, so people who bought a house for $200k 15 years ago on a teeny house and took out repeated loans quickly got to where they couldn’t repay), and the banks sat on a ton of the houses for several years, which resulted–predictably–in some pretty awful damage. The damage enormously impacted the selling price of these houses when they could be sold, far and away beyond the actual repair price, to the point where some of the larger houses (3000 sqft +) sold for as little as $200-250k. Because our neighborhood is so tiny and isolated, this distorted all the comps, further driving down prices. It will recover, but for now, houses are a crazy steal here. There are still three or four damaged bank-owned houses that have yet to go on the market. If we had the cash, it would be GREAT to snatch these up.

Krantcents May 16, 2013 at 8:28 am

Remember, interests rates are at historic low! It is almost like the bank is paying you to buy the property. If you can get a positive cash flow, it may be worth it.

Kyle @ Debt Free Diaries May 16, 2013 at 9:46 am

Investing in a house is something that Leslie and I might not do for a long time. We’re planning on purchasing the place we live in with cash. However, an income property is something I’d take a loan for and am currently getting my knowledge on and learning about income properties while we pay down some debts.

Krantcents May 16, 2013 at 10:26 am

I find it interesting you want to pay cash for your home, but borrow for a rental. Leverage works really well for both, but you can pay it off early.

Greg@Thriftgenuity May 16, 2013 at 9:54 am

We are contemplating trying to grab an income property before rates go back up. We are just waiting until we are 100% sure that we will stay in the current area we are in. I will definitely be disappointed if we wait too long and interest rates have shot back up. Luckily, my first home, which is now a rental, was a fixer-upper, so I am now getting the value out of it as the market recovers.

Krantcents May 16, 2013 at 10:31 am

I would be less concerned about interest rates, but more concerned about prices. Prices are returning to pre-bubble levels because of low inventory.

Sicorra May 16, 2013 at 10:10 am

It is good to see that real estate is finally recovering in the US. It was only a matter of time. I’m so glad we didn’t go through that in Canada. When I look for a house I agree that there is an emotional part, but I always look for something in a good, safe, popular neighbourhood as well. This makes it is much easier to sell.

Krantcents May 16, 2013 at 10:34 am

It is important to have criteria before you make a decision.

Darwin's Money May 16, 2013 at 7:36 pm

I never consider residential/primary as an “investment”, but it’s a lifestyle choice to me. From an investment property standpoint, it’s probably still a pretty good time. There has been a lot of action from larger buyers, international investors, but for people just starting out who want to buy a single property or unit, that stuff’s probably too small for many of the big buyers and there are still plenty of opportunities to pick something up that’s cash-flow positive.

Krantcents May 17, 2013 at 6:58 am

Home are still a good entry point for rental properties because the value i s not based on income. Smaller units like duplex, triplex or fourplex are not plentiful. Low supply and pricing can be make it more expensive because demand.

Terry May 17, 2013 at 2:27 am

I like your point about having someone to help you find the type of property you are looking for. A good real estate agent can help you save alot of time when searching.

Krantcents May 17, 2013 at 7:31 am

It took me a long time to find the right real estate agent, but they are out there. You need one that understands your goals and is willing to work with you.

Little House May 17, 2013 at 6:53 am

Living in the Los Angeles area, I know I missed the rock-bottom pricing boat. I’m now eying states that are much cheaper for rental properties. At least it could be a potential start to owning property.

Krantcents May 17, 2013 at 7:33 am

Be careful, you need to know the local area really well and I have no confidence in management companies. Track record and referrals are very important.

Anton Ivanov | Dreams Cash True May 19, 2013 at 1:39 pm

It’s still possible to find good real estate investment deals in a rising market – it’s just much harder than during a falling or bottomed-out market. A good place to look is distressed sellers who don’t have their property listed on the MLS.

Krantcents May 19, 2013 at 2:52 pm

I think you should always look for values in investments and real estate is no different.

Carrie Thompson May 20, 2013 at 3:20 am

Maybe. But with enough knowledge and the with the help of trusted real estate agent you can buy real estate anytime that you want.

Krantcents May 20, 2013 at 6:52 am

The search may be longer, but still worth it.

Holly@ClubThrifty May 20, 2013 at 9:13 am

I think that it’s a great time to buy due to awesomely low interest rates. I wish I could buy more rentals right now, but my hands are full. I hope to invest in a few more in the next 5-10 years.

Krantcents May 20, 2013 at 10:22 am

Normally, low interest means that the prices are high, but I think there are still opportunities out there.

Ryan May 20, 2013 at 12:52 pm

I currently don’t own any real estate outside of my primary residence, but I have recently been researching investment properties. I would love to add a cash flowing rental property to my investment portfolio. Ideally, I would like to have several of them by the time I reach retirement.

Krantcents May 20, 2013 at 2:46 pm

Start small with a starter home or condo and build from there. Now is a great time to investigate.

Paul @ The Frugal Toad May 20, 2013 at 7:38 pm

The market in Phoenix has changed drastically over the last 6-12 months as investors have bought up most of the housing under $150K to either flip or use as rental properties. The down side is that lower income families are priced out of the market and rental prices are inflated.

Krantcents May 20, 2013 at 8:53 pm

It sounds like speculators are raising the market! Innvestors will have look harder to find value.

Untemplater May 20, 2013 at 10:29 pm

It’s nerve wracking buying property because it’s such a huge price tag compared to everything else we’ve bought. It’s definitely important to do due diligence and crunch real numbers before jumping in. If you can afford it, it’s a great way to diversify your investments.

Krantcents May 21, 2013 at 6:53 am

Absolutely! Anything worthwhile is scary, but you can reduce the fear with research and getting your questions answered.

Thomas May 22, 2013 at 6:48 am

Bad times are left behind for the real estate segment. Real estate and vintage gold coins have always stayed on the list of my favorite investments. As you rightly mentioned in your blog, real estate is the largest component of wealth.

Krantcents May 22, 2013 at 6:55 am

Rich and successful people always own multiple properties and so should everyone.

Buck Inspire May 30, 2013 at 2:10 am

Great advice KC! Real estate like stocks are investments and we need to do our due diligence. 35 brokers? Impressive. I finally jumped in to take advantage of the ridiculously low interest rate at the beginning of the year. Things are going well, but now I have to get used to doing yard work!

Krantcents May 30, 2013 at 6:54 am

Thanks! Yard work can be therapeutic. :)

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