Everybody wants to know, ‘When will real estate prices stop falling so we can start buying again?’
By Rick Harper
RISMEDIA, September 29, 2008-The secret is, not all properties hit rock bottom at the same time. Many properties have already hit bottom and they have already been purchased. Somebody else got the deal. Some properties will never hit bottom; the sellers will simply remove them from the market and re-list then in better, more expensive times. I like to describe the market like this: If I threw a handful of small rubber balls in the air they would not all hit the ground at the same time. They’d all bounce at different times, just like individual house prices.
Not every seller will come to the same conclusion at the same time. A property is not worth what the seller wants, what the seller paid or even what somebody else paid. A property is worth what a willing and qualified buyer will pay today and not a penny more. The good news is sellers are starting to figure it out one at a time.
The trick is identifying the bounce and when to buy a specific property. For me as an investor looking to maximize profits, the price of a specific property is at rock bottom when the return on investment is better if I buy the property than if I leave my money where it is. Compare the real estate rental income and positive cash flow to the other investment options we all have, i.e.: stocks, bonds, savings accounts, etc. As real estate prices come down, and consequently the mortgage payments and taxes come down, while at the same time the demand for rentals is growing, at some point the positive cash flow will make the investment irresistible. That is the bottom for an investor.
With the scenario I have just describe each individual property is a micro-market of its own. The only thing that matters is its return on investment. You must only consider how you will benefit from that specific property. You must ignore everybody else and their investments. What we see now in hind sight is that many people paid too much when they invested like the masses in a sellers market. Remember, for you to win somebody else has to lose. Because so many people are losing so much of their equity it makes your ability to win much easier in a buyers market like we are in right now.
In a stable market, real estate prices are not driven up by investors. Home owners should be the predominant driving force. When a renter sees that their rent is higher than what they would be paying if they were to buy a similar property the tenants tend to once again convert to homeowners. That is the bottom for tenants. We know not all tenant have what it takes (income, savings and credit) to secure the American Dream of homeownership consequently there will always be tenants and they will always need investors like us to provide them with a home.
It has been years since we have seen prices low enough that we could invest in nice properties in great locations that yield an attractive positive cash flow. I got tired of hearing, “I remember when I could” or “I should have bought them all when I had the chance”. Now you can. You have a second chance. It may be your last chance. Take advantage of it.
About the author: Rick Harper grew up in the real estate business. He is a multi-million dollar real estate investor, and invests in commercial, residential and land. He has developed a strategy to acquire real estate with financing and then get it paid off to enjoy the pure cash flow. He is a broker, national speaker and investment consultant.
For more information or to arrange a free consultation on investment and finances call 813-243-1223, or visit www.HarperRealty.com
