A lot of people ask, “When should I buy? What part of the real estate cycle should I buy in? Should I buy in a down market? Are the values going to keep going down? When should I buy and where is the cycle right now in my area?”
But these are the wrong questions – it’s not “WHEN should I buy?” You should always buy NOW.
I've said this when the market was good and I've said it when the market was down. The real question is “WHERE and WHAT should I buy?”
There is always a place, somewhere in the country that is either appreciating or is an undervalued market. And the reasons may be local economics; it may be demographics, or it may be related to its location. Maybe it’s because the population is growing in those areas, or maybe it’s in a town where a large industry is moving in. For example, there are towns and markets where large oil companies are moving, creating a large number of new jobs which creates a need and demand for more housing (purchase and rentals).
Those are a few things to look for in a good market.
But one of the most important things to look at in an investment property is its income. This is measured by looking at the property's net cash-flow, but a quick way to do that is to look at the Rent-to-Value Ratio (or R/V ratio for short).
You want to find the biggest possible ratio you can find. That means you want to look for areas with lower prices and higher rents. There are areas where you can find low prices and there are areas where you can find high rents, but there are usually only a FEW areas where you can find BOTH low prices and high rents. Those are the areas to take a close look at.
Generally, you'll want an R/V ratio of 1.0% or more. You can still purchase property with a ratio as low as 0.7% and still generate positive cash flow, but it's best to stick to an R/V ratio of at least 1.0%.
Look for the property you can buy either under market value or that will produce the highest cash-flow return on your investment. If I have to choose between cash flow and equity (when buying passive investments), I recommend going for cash flow. If you start with good cash flow, the profits can often outstrip equity build-up — and do it in a few short years.
But it’s possible to find a property that will give you both if you know where to look. Rather than waiting for the market to be right, find the right market and the right deals to buy.
Sure, I’d like the houses to be five minutes from me, but I’d rather buy in better markets as long as I can solve the problems of being an absentee landlord — which is easily accomplished using a competent full-service property management company. Remember what I always say, “Live where you want. Invest where it makes sense!”
About 3 or 4 years before the real estate crash of 2007, some people would ask me, “Is there a real estate bubble?” I had to emphatically tell them that we were already deep into a bubble with some areas having already “popped”. One of the reasons they would ask was because they wanted to know if a particular area was going to appreciate.
Here is the lesson that many investors had to learn the hard way — including myself.
The lesson is this — don’t buy real estate investments with the idea that you are going to make your money through appreciation. It’s a huge mistake and an easy trap to fall into.
Nobody knows the future. Back during the boom, everybody was looking back, using hindsight, and saying, “Boy, what if I’d invested in that city and got the 30% annual increase in value on the house I bought – that would have been great.” But that hindsight doesn’t do us much good. It’s like gambling and is usually based on luck.
Guessing on appreciation is called speculative investing, but what I’m talking about is a much more conservative approach to building wealth with a real estate portfolio.
Build it so you know there is going to be cash flow and equity growth when you're ready to retire. If you’re going to speculate you’ve got to be prepared to lose all of the cash you spent to acquire the property and potentially more.
When Was the Best Time to Buy a House in 2023?
The best time to buy a house depends on several factors, including market conditions, personal circumstances, and regional variations. While the traditional wisdom suggests that spring is the best time to buy, other seasons can also offer opportunities for home buyers. Last year, the fall season was the best time to buy a house, especially in early October. Here's why!
According to a report by realtor.com, the best time to buy a home last year fell within a specific timeframe – the week of October 1-7. That week offered an enticing balance of market conditions that distinctly favor potential homebuyers over any other period throughout the year.
Unlocking the Advantages of Early October
Nationally, this week of October historically showcases the optimal equilibrium of market dynamics tipping in favor of buyers. Inventory levels tend to be abundant, prices often dip from their peak, buyer demand eases, and the market's pace mellows to a more manageable speed.
This seasonal slowdown is attributed, in part, to school schedules and changing weather patterns. The homebuying flurry typically begins in spring and peaks during the summer, driven by families aiming to settle into their new abodes before the school year commences. However, as the year transitions into fall, and families focus on school-related activities, demand decreases, and prices dip to post-peak levels, offering an advantageous scenario for homebuyers.
Key Benefits During the Best Week
During this prime week, several significant advantages come into play:
Plentiful Listings: Historically, inventory levels peak during this week, providing potential homebuyers with a wider array of choices compared to other times of the year. Although this year's inventory may not align precisely with past trends due to a hesitant seller market, the first week of October is anticipated to offer a considerable increase in active listings.
Reduced Competition: Homebuyers shopping during this week can expect reduced competition from other buyers. The typical surge in home shoppers during the spring and early summer subsides, giving buyers more breathing space and less competition for their desired properties.
A More Manageable Market Pace: The market's pace slows down during the best week, allowing buyers to deliberate on their decisions. Homes typically take longer to sell during this period, offering buyers the luxury of time to carefully consider their options.
Lower Post-Peak Home Prices: As the market cools off from its peak, home prices tend to dip during this week. Buyers stand to save a significant amount compared to the year's peak, making it an economically appealing time to make a purchase.
More Price Reductions: The best week also sees a notable number of price reductions, providing potential savings for buyers. Sellers are often more inclined to reduce prices during this period, presenting opportunities for buyers to secure a better deal.
Determining the Best Time to Buy a House
Realtor.com uses a comprehensive analysis of various housing market metrics to pinpoint the ideal time for buyers. These metrics encompass listing prices, inventory levels, fresh listings, time on the market, homebuyer demand, and price reductions. By evaluating and scoring each week based on these metrics, a clear pattern emerges, designating the best time to buy a home.
Guiding Your Homebuying Strategy: Priorities and Market Insights
In the current real estate landscape, mortgage rates have lingered between 6% to 7% for nearly a year, adding complexity to the homebuying process. Despite a year-over-year decline in prices during the summer, financing 80% of a median-priced home still meant grappling with more than a 20% higher monthly payment in July 2023 compared to the same month in 2022.
Economic factors, including interest rate hikes and persistent inflation, have sustained these elevated mortgage rates, posing challenges for both buyers and sellers in the market.
For potential homebuyers, these high mortgage rates not only deter activity but also discourage many homeowners from selling to avoid purchasing at the current rates.
Consequently, the market has witnessed fewer new listings and a longer time on the market. However, this scenario might present an advantage for buyers as sellers may become more flexible in their terms.
Understanding your priorities is key when navigating this uncertain landscape. The optimal time to buy a home balances various factors to pinpoint the best overall week. Yet, if your primary concern is price or having a wide array of fresh home options, your ideal timing may slightly vary.
If securing a lower home price is your primary focus, consider waiting until later in the fall, closer to the holidays when home prices usually decline. However, it's essential to monitor mortgage rates to ensure they align with your budget.
Utilizing tools like a mortgage calculator can help you gauge how changes in mortgage rates impact your monthly housing costs.
On the other hand, if having the maximum number of options is paramount, consider buying a bit earlier, as new and active listings tend to peak earlier in the fall.
Early buyers are more likely to have a broader selection of fresh homes, even if they pay a slight premium for purchasing earlier.
Customizing Your Approach Based on Local Markets
While the best week to buy a home at a national level is highlighted in early October, it's essential to recognize that local markets may present nuanced trends. Factors like regional demand, supply, and economic conditions can significantly influence the optimal timing for a home purchase.
Thus, choosing the best time to buy a home involves a strategic blend of market awareness, financial readiness, and personal priorities. The week of October 1-7 stands out as a promising window of opportunity for potential homebuyers, offering advantages such as increased listings, reduced competition, a manageable market pace, lower post-peak prices, and more price reductions.
As the real estate landscape continues to evolve, staying informed and adopting a savvy approach can help you navigate the housing market with confidence and secure your dream home at an opportune time.