Real Estate: Time to Get In or Time to Get Out?

Time to get in or Time to get out? Maybe it’s both…

Long before investors argued over FOREX Trades, Debt Swaps, and Stock Exchanges, property was the largest speculative gamble one could make; and while we may not be buying property with the prospect of gold or oil being under it anymore, the one-time “safe” investment is seeming increasingly risky. But is it really? Let us examine.

There are only two realistic arguments for the position of the real estate market: either it has reached a bottom and will not dip further, or it has not reached a bottom and will continue to fall. Strong cases can be presented for both arguments however I have yet to meet a sane person who believes the market can fall much more than it has (in Los Angeles that is). Conversely I have yet to meet a sane person who believes that we will ever see property value appreciation at the rates we experienced in the last decade. So what is one to do? Wait on the sidelines for some sort of assurance that the market has reached a bottom before they buy? I think not.

More and more I find myself meeting people who have a decent amount of money saved up, or the credit score necessary to get a low down payment mortgage, but are afraid to buy property because they believe the market may go down a little more and they want to buy at the bottom. This hunger for the best price possible is only natural, but what they are not realizing is that interest is VERY expensive! What I mean by this is that unless you are Donald Trump, and are going to buy your property with all cash, you are subject to the prevailing interest rates available through lenders. With inflation looming on the horizon everyone agrees that interest rates are headed up. So while you may get a better price on a property by waiting a couple of months for the price to come down, an increase in the prevailing interest rate will overshadow any savings you have gained.

To better illustrate this lets consider this example: Client A purchased a property today for $250k, putting down 10% and got a loan at 4.25% for 30 years. Client B waited several months and bought an identical property for $230k, put down 10%, and got a loan at 5.5% for 30 years. On first glance it would appear that Client B was smart and waited for the better deal; but when you crunch the numbers, at the end of 30 years Client A paid a total of $398k and Client B paid $423k. So instead of saving $20k by waiting for a better price, Client B lost money because of the interest rate change during that same period of time. As in all aspects of investment it is the fine details, often overlooked, which make the difference between a good deal and a bad deal.

Now knowing that it is time to get in the market, let’s examine where one should be looking to buy. At JohnHart I manage over 120 short sales across California, Hawaii, and Nevada, so it is more than safe to say I am in touch with the current real estate market. As short sales can be very tricky, and one would be wise to hire a very experienced listing agent if needing to sell in this fashion, but for buyers it presents an opportunity to acquire a property at less than market value. So if you take the immediate savings from a discounted short sale purchase and lock it in with the present financing rates an investor or homeowner stands to earn an almost immediate return!

Sound too good to be true? Well in interest of full disclosure I must tell you there is one caveat: a short sale purchase can take time to complete. So to truly take advantage of the current market you must do two things, first make sure to hire an veritable short sale expert agent, and secondly don’t wait until the last minute to write an offer on a property. If your lease expires in three months you should be looking and writing offers now.

In summation, while real estate feels very risky because of the sheer size of the investment, there has never been a better time to buy. Prices are low, and interest rates are lower. Simply put it is time for those who are not in the market to buy in, and those who bought in at the wrong time to short sell out!

We welcome all inquiries and invite you to call us @ 818-246-1099 or shoot us an email at JohnHart@Jhhre.com

About John Maseredjian

John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals. He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)

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