“The time to buy is when the values are just about bottoming out. Sellers are at their most vulnerable at that moment. Once the market bottoms, sellers lose that feeling of a ‘free fall’ and get their confidence back. That translates into a stronger negotiating posture among sellers.” Greg Rand, Crash Boom!
We used to get a lot of emails from folks asking us if we thought now was a good time to buy. We haven’t had an email like that in months. These days the emails we primarily get are from people who want to invest but aren’t sure of their first step or that want to invest in real estate but can’t find the right deal.
Does that mean most people believe that, generally speaking, now is a good time to buy? Or does it mean that only those that believe that the market is recovering or going to recover soon are even considering investing right now and everyone else is hiding?
I am not sure.
I can tell you that it doesn’t matter where you live in North America, the headlines are never going to tell you the answers.
TheGlobe and Mail Businesssection on April 27th, 2011 was a confusing array of headlines regarding the real estate market.
- “Silicon Valley’s Real Estate Rebound: As technology companies race to expand operations, office space is once again a high priority.”
- “Home prices continue slide in U.S.”
- “Consumer confidence resting on housing market” and the subheading mentions that three in five respondents to a survey said their home is worth more than four years ago.
That is just one newspaper on one single day!
No wonder so many new real estate investors are scared and not sure what steps to take! If you read the paper (which I don’t, by the way, I picked this up while enjoying a leisurely breakfast at a hotel with Dave on a morning off) you are facing a barrage of conflicting messages each and every day. Most of them steer towards the negative side of every story but even when they don’t, it never proves to you conclusively what you need to do.
At least they won’t unless you pay attention to the headlines that matter. And, even then you won’t know what to REALLY look for unless you understand the real estate market cycles.
I’ve shared some thoughts around the housing market cycles before when I asked “Are we in a housing boom? Slump? Or Recovery?”, but today I want to get into a few points I’ve pulled out of another book I’ve just read. This one came to me straight from the publisher who was looking for me to share it with everyone if I liked it. Since the book made some great points I decided to do that.
One little note before I give you three key points from Greg Rand’s book Crash Boom!. I enjoyed the read and I do recommend it but I think it’s a bit on the general side. I also felt this book was a little too bullish on the US. He didn’t address the fact that the US does faces troubling issues with it’s currency in the international arena. It is also highly likely that the lack of responsible fiscal policy shown to date will prolong the economic pain in many areas of the US for years to come. He just focused on real estate cycles and how it will be back because it’s America. I agree, but not in such a general way.
You’ll get a lot from the book – especially if you live in the US and want to invest in your local market – but keep in mind that real estate is local. It doesn’t matter if you’re in Lethbridge, Alberta, Canada or Palm Beach, Florida, USA you have to look at what is happening locally to really get a sense of what’s happening in your real estate market.
People can debate all day long whether the US housing market is recovering and it doesn’t really matter if, in your little pocket of St. Paul, Minnesota there’s job creation, immigration and a positive local government spearheading positive growth. All that matters to you is where you’re going to buy because you have a hot new pool of tenants coming your way!! Just like it doesn’t matter what’s happening anywhere else in the US if you own a house in one of the neighbourhoods of Detroit that are getting bulldozed over.
Get my point? So –learn the cycles, read this book, and keep in mind what’s happening in your local market. National numbers mean very little in a game that is very locally based. So follow LOCAL headlines and watch for growing signs in your local market so that you prepare yourself ready for a housing recovery, followed by a boom, because it’s coming. In every market area it will be different and in some areas it may even be started, but you won’t know unless you know what to look for.
So with that pre-amble, here’s my three favourite points from Greg Rand’s book, Crash Boom!:
- Find Your Florida: Florida has taken a beating in the recession. Bad behaviour on the part of developers, speculators, lenders and home owners came together to create a complete disaster. But Florida’s economy has been growing for 40 years and, arguably will continue to grow because of climate and demographics. “Florida has a short-term problem, but a fantastic future. Situations like this exist all over the country. Sometimes they are high-profile like this, but usually they are obscure. Find your Florida.” (p.120)
- Have a kid, buy a condo: This strategy is brilliant and we’ve actually seen more and more people doing it, and we love it! Rather than a savings plan or an RESP, buy an investment property that pays itself off while your child grows up. When it’s time to go to University the cash flow from the property can help pay for their education, OR you sell it and use the proceeds to fund their schooling. And I love what he says about this: “Consider how a college savings plan compares to a real estate investment during a painful recession. Would most people have the fortitude to continue a long term savings plan that requires a monthly instalment of $1,000?” Most people wouldn’t but with a tenant in a condo paying down the mortgage for you that is exactly what happens!
- Prices WILL go up again: The American housing market has appreciated during every 10 year period in history. Even after the tough years we’ve been through prices have still not dipped to where they were 10 years ago. He argues that things will begin to flatline for about five years and then we’re going to have another economic boom and the revival of housing values will come. Hard to argue with all the historical charts and graphs he shows … but what I liked best is found at the end of the book when he looks at specific markets, their house prices and the story of what’s happened in that market. It’s a fun and quick overview of a dozen or so major markets.
At the end of the day his point is one that can’t be made enough, and that is that you need to focus on the fundamentals. Specifically, look into your local market numbers and see if your population is growing. Look at the job market. Figure out if it is growing and if it is, determine why and if it’s sustainable.
Housing market cycles exist… it’s been proven repeatedly. We are coming out of a slump (and depending on where you are, you may be in recovery already), and the smartest real estate investors are enjoying the good times shopping right now, looking to the future when they can cash in on their patience and relax while everyone else scrambles to try and find deals as the market heats up.
You could wait until you’re sure recovery is here – or you can do what we’re doing and find great cash flowing properties that you’re happy to hold for five years or longer as the market rocks and rolls it’s way into recovery.