As I was out and about the other day, looking at properties on the market, it suddenly occurred to me that many of the properties I was seeing could be purchased at prices I would have expected to see in the late 1990s. These “flashback deals” may not be prevalent everywhere, but a smart investor who knows what to look for can find rental properties that would have listed for $150k in 2006 for almost half that price today! I realized that in spite of the trepidation investors may be feeling because of the “burst of the housing bubble,” if you know what you’re doing, now is the perfect time to buy.

Any quick search of real estate news will tell you just how low housing prices are. This article in the New York Daily News states that “home values [in the New York metro area] fell 1.6% between January and March to $346,600, hitting their lowest level in more than seven years,” and that  “across the country, home values posted their biggest quarterly drop since 2008, falling 3% in the first three months of this year.” According to ABC News “Home value declines are currently equal to those we experienced during the darkest days of the housing recession.”

This is good news for investors, who may wait decades for a buyer’s market as steadfast as the one we’re currently experiencing; but further research reveals that investors looking to take advantage of the low property prices should be prepared to make it a long-term investment.  Although there are a few opportunities for house flipping for a quick profit, most experts agree that it may be a few years more until the housing market fully rebounds and home values see a consistent upward trend.

So when can investors expect to see home values increase?  Most sources say not until 2012 at the earliest.  According to CNBC “Home value declines are currently equal to those we experienced during the darkest days of the housing recession. With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.” The Wall Street Journal puts it another way, saying “if we consider that the housing bubble inflated from roughly 1999 to 2006, that made seven fat years. An ancient authority would suggest that seven lean years should follow. That would mean two more lean years to go.”

But when economists predict two more years of declining real estate prices, they don’t necessarily mean that prices will suddenly return to “normal” in one or two years, only that this is when we might expect a break in the downward momentum.  The Wall Street Journal explains it this way “As the debt hangover works its way through the system, the outlook is for housing to continue along an extended rocky and bumpy bottom, generally moving sideways in nominal terms. Since we will have an overall inflationary regime, real house prices will be falling. After working through the concluding lean years, housing prices can reasonably be expected to regain their long-term trend of increasing a little over 3% per year in nominal terms. . . This would take them back to their highs in 10 years or so.”

What this means for investors is that there may never be a better time to buy than right now… but only if you have the wherewithal to hold on to your investment as long as it takes to see the kind of return you hope for. If you have questions about the current real estate market, or whether now is the right time for YOU to buy, contact my office today.

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I recently came across this article in the New York Times which suggests that the housing boom is over—not only for now, but forever—and that the days of making money with real estate are over as well.  “People shouldn’t look at a home as a way to make money,” quotes the article, “because it won’t.”

Respectfully, I disagree.

It is certainly true that with real estate in such a depressed state, now is not the time to buy property and simply hope the value increases; however, now is the perfect time to purchase “rental” property that will pay for itself in the short-term, and increase in value over the long haul.

A few years ago real estate was skyrocketing and it seemed that everyone’s advice was to invest.  But the time to invest is not when everyone is buying and prices are high.  The best time to invest is when prices are low… so long as you have the time and the resources to hold onto under-valued property until the market recovers—which, as David Streitfeld mentions in his article, may take years. The question you need to ask yourself is not “Is now a good time to invest in real estate?” but “Can I afford to put the time and money that may be required into this investment to see it through?”

According to Andy Louis-Charles of The Motley Fool, the true key to real estate investing is rental value, not appreciation, “this is the only tried-and-true metric that ensures a worthy real estate purchase.” Everything else “is either speculation or indulgence.” The question of whether or not real estate is a good investment now becomes a matter not of luck but of strategy.

The key to success in the investment of rental properties is five-fold:

1. Know Your Timeline (or at least have a good idea). How long you plan keep your rental property will be a large factor in determining how much you’ll need to invest above and beyond the initial cost of purchase. Improvements, maintenance and repairs will have to be considered as part of your overall plan.
2. Have Your Financial Ducks in a Row. Owning a rental property means you’ll be dealing with people… some of whom will miss a month’s rent or leave you with unexpected vacancies.  Have enough money in reserve to comfortably deal with these crises.
3. Find the Right Location. Everybody knows that it’s all about location.  Of course some locations will be more profitable than others, but many non-traditional locations can be profitable if you know who your target rental audience will be.
4. Have Good Advisors. Agent, Mortgage Broker, Attorney, CPA, Management Company… these are just a few of the people who will be invaluable in helping you make the right moves and decisions along the way.
5. Get the Right Price. According to the old adage, “You make your profit when you buy a property, not when you sell it.” And now is definitely the time to get the right price. July of 2010 saw 325,000 foreclosure filings, that’s “the 17th month in a row total filings exceeded 300,000” according to RealtyTrac’s CEO, James Saccacio. Although this is a disheartening statistic for the economy in general, what it means for investors is that the cost of property is low and there is a higher rental demand.

The NY Times article rightfully suggests that investing in property now isn’t likely to make the quick profit it might have a decade ago, but that doesn’t mean we should throw the baby out with the bathwater.  Remember, rental property is often referred to as the “IDEAL” investment:

I: Income/Cash flow
D: Depreciation and tax deduction
E: Equity buildup from mortgage paydown
A: Appreciation in property value over time
L: Leverage; using a small amount of your own money to control a large value asset

Land is still land. People still need a place to live and a place to house their business. You can be a part of that, and my firm can help.

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