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.
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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.