Is Now the ‘Right Time’ to Buy Real Estate?

With so much going on in the world these last couple months, and so much economic turmoil, many people are wondering - is now the right time to buy real estate?

If this is the question you’re asking, you’re asking the wrong question! What you should be asking is “how can I find opportunity in these times?” Every time there is disruption, there are challenges - but the flip side to that is that challenges mean there are problems to solve, and that means opportunity for those who know what to look for and how to take advantage of it. Likely the basis of the above question is a focus on the very basic level of what people consider to be “investing” - to buy low and sell high. The question is really asking, “are we at the top of the market? Should I wait for it to go down before I buy? What if I buy now and the market goes down?”.

There are several issues with this type of thinking.

1) Trying to time the market is a fool’s errand If your focus is on timing the market, you’re going to miss out on opportunities while you wait. There were people that thought 5 years ago that we were at the top. Wow, they missed out on HUGE opportunity during these last 5 years! If you sit on the sidelines every time you think there is going to be a correction, and you’re wrong, you’re giving away opportunity and the profit you could be enjoying as well. You’ll also probably be spending more time on the sidelines than you will being in the game. And we all know you have to be in the game to be able to win.

2) True investing doesn’t rely on timing asset pricing

Let’s get this straight. Buy low, sell high is not investing, it’s trading. It’s speculating. True investing is creating income and making your money work for you, and utilizing all of the benefits real estate investing has to offer. The truth is, it doesn’t matter what you pay for a piece of property. What matters is what you can do with it and the income you can create from it. There are plenty of people who have paid a great “price” for a building, but it failed miserably as an investment. On the other hand, there are others who have paid what many would have considered to be overpaying for a building, but have turned it into a successful investment. Price is only one piece of the equation. I’m not saying be reckless or overpay for everything. You absolutely need to make smart investments. But don’t get so caught up in price that you miss the point.

3) There are deals in every stage of the market cycle

Strategy may need to adjust, but there are always deals worth doing during every part of the market cycle. Sometimes they’re harder to find, or you need to change your approach a bit, but they’re there. You just have to look and have an open mind - not fixed solely on price - to be able to seek them out. Keep in mind that if you are educated, a down market can be an amazing time to invest.

4) Deal structure is important So, what happens if we are in fact at the top, you go buy a building today, and next month the bottom falls out. This is where deal structure is hugely important. Just because you shift from a buy low, sell high mindset does not mean you shouldn’t pay attention to the very real issue of market cycles. Markets do and always will go up and down, and it’s very important to pay attention to them and factor that into your strategy. If you feel the market may be ready to shift, it doesn’t mean you shouldn’t buy, it just means you need to put precautions in and make sure you’re using a strategy that will still work if it does. For instance, if you’re doing a repositioning of a building with the intent to refinance it out, you had better have a “plan B” in case values decline or financing changes and that initial exit strategy needs to be pushed out.

5) Lock in that low interest debt! Another huge factor in the performance of your investment real estate is interest rate. Right now rates are still incredibly low. LOCK THAT IN! Get as much long-term, fixed, low interest debt against property as you can. The flip side of prices going down is you often have higher interest rates at the same time. When banks want to decrease funding they do so both by raising loan standards and by disincentivizing borrowing by raising interest rates. So, if prices go down but rates go up, the performance of your property remains relatively the same. From a long-term perspective, I’d rather buy a property now at a higher price and reap the benefits of the tax incentives, cash flow and amortization than wait for 5 years trying to get it for less and miss out on all of that while I wait. What you’re giving up with those benefits while you wait could absolutely and likely will end up being more than the “higher” price you pay for the property now.

6) Don’t wait and see, analyze and go! Those that are active and looking for opportunity, and who understand that investing is not just about asset price and buying low to sell high will be the ones that benefit and do amazing things during disruption in the market. We’re definitely in one of those times right now. Whether that’s short-lived or we’re headed into another longer downturn is yet to be seen, but either way there is wealth to be built. Don’t sit on the sidelines. Get educated, build your team and be active in the market. Living Life Loud, Ben Nelson Destination Specialist Wine Country Properties