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So You Missed the Bottom of the Real Estate Market…Now What?

by Michael Zuber on January 28, 2013 · 14 comments

  
Bottom of Real Estate Market

I write this article for the new investor who is researching, thinking about, or evaluating real estate investing and has not yet made an investment.  I do not write this for the investors who scooped up multiple investment properties from 2008 to 2012.  To the latter I say “Congratulations.” To the former I say “Now what?”

If you are a new investor licking your chops to make a killing in real estate but you wanted to wait for the bottom to jump in, guess what: you missed it.

For example – in my market we are at least 20% off the bottom and climbing at an impressive rate.

I wanted to write this article to new investors because I see four options for them as they sit on the sidelines now that the bottom has passed.  With more and more articles calling for accelerated appreciation, it will be a short time before we see the cover of Fortune claiming real estate investing is a pot of gold waiting to be picked up.  By the way, you know what happens when Fortune claims something is full proof? Hint: sell!!! Fortune is better at calling tops versus bottoms.

Here are the options, as I see them.

Option 1: Kick Yourself For Not Taking Your Shots Last Year.

You can try and convince yourself this is just a bump in the road and a massive wave of inventory or black magic will once again rise up and squash prices.  I suspect if you are in this camp you will be holding onto your cash for a long time and years from now you will be telling friends about that house or duplex you could have bought for “X” back in the day.

Option 2: Dive in Head-First and Crazy

Having so clearly missed the bottom in real estate you could dive in head-first and start making crazy offers just to buy something.  I am already seeing this behavior in my market as buyers just want a property now and thus, with reduced inventory, prices are being bid up all over the place.  The problem with this, from my perspective, is this feedback loop, while positive, is not built on reality but greed.  Frankly, if prices shoot up like I think they might in the next 24 months I could very quickly become a net seller again like I was in 2007.

Option 3: Skip Real Estate

Having missed the bottom in the real estate market you could convince yourself that better returns are to be had elsewhere because – why would you buy a house for “X” when last year you could have had the same house for “X-10%?”  Maybe you will chase metals, stocks or foreign currency.  No matter what it is, you are sure to be speculating or likely sitting on your cash until another market turns against you.

Option 4: The Balanced Option

The final option is the one I hope most new investors take.  With the bottom clearly done and the fact that most markets overshoot to the downside, it is time to pay attention and get laser focused on your buying criteria.  This is the time to work harder, smarter and pay attention to detail as a rising tide raises all ships.  Remember that real estate historically runs in 10 year cycles and we have already had our bad 5 years so the next 5 years could be something special.

In the end – you missed the bottom but so what; who cares? No one ever calls the bottoms or the tops perfectly.  That said, with the bottom firmly in place it is time to get to work and let the years of appreciation and cash flow ahead help you and your family.

Good Investing
gadl

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{ 14 comments… read them below or add one }

Steve Cook January 28, 2013 at 9:01 am

Michael,

Excellent and timely advice.

I would add that this is still a very fragile recovery, especially in the Midwest and Northeast. All markets are different and nothing beats good research on cap rates and rents, foreclosure/short sale inventories and discounts, and local market price forecasts.

Reply

Mike Z January 28, 2013 at 4:34 pm

Steve,
Very true and I watch the Macro environment all the time as it can turn around and bite you if you are not careful
Thanks for everything you do as I look forward to your weekly posts
Good Investing

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Karen Rittenhouse January 28, 2013 at 11:08 am

Michael:
Oh, but I pray you are right. I am dreaming of those days of appreciation and passive gain on our investments! I’m believing with you!
However, this country has no budget, we don’t have any idea how Congress will vote on taxes, decreasing (?) the deficit, or slowing (???) their out-of-control spending.

Now that I’ve boldly confessed the fact that I cannot predict the future, I would encourage wanna be investors that now is the perfect time to get into this business. In fact, it’s always the perfect time and I can promise you that, no matter when you jump in, 10 years later you’ll wish you’d done it sooner.

We are absolutely somewhere in the financial cycle as there’s always a financial cycle. What you need to do is adjust your business accordingly and focus on what’s working best. When the markets decline, you will be overwhelmed with tenants looking for rentals. When the markets increase, you have a fabulous opportunity to sell for profit. Different cycles, different focus.

Just do it. Get in and learn. Be informed (you’ve already found your source – BiggerPockets.com), hang out with others doing this business, and start your investing career. 10 years from now, you’ll be glad you did!

Thanks, Michael.

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Mike Z January 28, 2013 at 4:35 pm

Karen
Well said as always
Good Investing

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Steve Taylor January 28, 2013 at 12:25 pm

This is a great article, I have met many people who wanted to invest but were looking for the “perfect deal” or the “bottom of the market”, I have seen prices rising the past year, when was the bottom? I would suspect that depends where you are and your perception, but in most markets there isnt going to be any going down from here.

My realtor for years was telling me about the “flood of foreclosures” coming when the banks opened up their inventory, it was always 6 months away, and in my area it never seemed to come. I would be surprised to see us go anywhere but up from here.

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Mike Z January 28, 2013 at 4:37 pm

Steve
As an active buyer I can tell you maximum stress was in late 2008 or early 2009. My lowest priced house was bought in 2010 (in my market)
Good Investing

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Kevin Yeats January 28, 2013 at 12:33 pm

One of my college professor would impart this pearl of wisdom “You can go broke waiting for the highs and lows of a market.”

Reply

Mike Z January 28, 2013 at 4:37 pm

Kevin
I agree!!!
Good Investing

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Natasha Nikolaeva January 31, 2013 at 10:50 am

Short, simple and true!
Rules of investing in real estate are: Buy when everyone is fearful, sell when everyone is cheerful. Also, buy when you can and as much as you can afford.

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Eric H. January 28, 2013 at 1:07 pm

Personally, I don’t look overall for a nation-wide bottom or top as real estate is local and if the numbers work, then do it.

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Mike Z January 28, 2013 at 4:56 pm

Eric
Very good points
Good Investing

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Robert Steele January 31, 2013 at 3:20 pm

Be careful buying for the sole purpose of speculating on appreciation.
It is always better to buy for the numbers that the investment makes in the hear and now.

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Robert Steele January 31, 2013 at 3:21 pm

here and now.

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James October 31, 2013 at 12:49 pm

Obviously Michael you have not done your homework. Your research is amateur at best.
If you noticed the Case Schiller long term 100 year chart it clearly says that housing has a ways to go until it bottoms.

America and the rest of the nations are in a financial mess and will only get worse. Inflation is going to go through the roof as the central banks continue to print to offset the lousy economy. This inflation in turn will put huge pressure on home prices and we probably won’t see a bottom for years to come.

James Rangel

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