This has been a question floating around for the last few days.
First of all, nobody knows where the bottom is. Some say it is 6 months. I doubt it after speaking to my banker clients. Some say 18 months to two years. Some areas may be trending downward for the next 8-10 years if you believe everything you read.
So why buy now if now is not the bottom?
How about this answer.....Cost averaging.
This is where you might buy one unit at $47,000 and another one at $53,000. Your average cost per unit is $50,000. As you continue to buy on the way down, assuming you are buying similar property in similar neighborhoods, your cost average goes down.
Assuming again that rents are consistent, your cost is going down and by extension your monthly profit is going up.
Average cost down. Average profit up.
This is a practice that can't really be employed if you are only planning to buy one property, but if you plan to get into the market and stay in, then there is no reason to wait for the perfect time.
It is likely that you will even continue to buy as prices start to rise again if you are continuing to create a reasonable margin on your rental income.
As lending continues to tighten, less and less people will be able to obtain loans. This means that the rental market will continue to strengthen.
Do you have questions about distressed assets, receivership or bankruptcy sales, auctions? Email me at rfk@gryphonusa.com and I'll try to answer it in an upcoming post.
Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Gryphon Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.
United Country Gryphon Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17
Rich:
So true. If I could accurately predict where the market is going to be, I wouldn't be working.
I hear an echo! Great post, Rich. While my market area is a bit different (I just completed a CMA that included three recent sales selling for more than list price) I agree. And I'm right there with Bill, too... always looking for that crystal ball!
For my area, North East New Jersey the question may not even be valid anymore. In come towns we are seeing prices improve and days on market fall, though not to levels we would like to see them, but 10 or more fewer days on market does make use feel a bit better. At most we have seen about a 2% or 3% price drop over the market highs of 2005/2006 so a very insignificant amount over the long hall.
At this point waiting in North East New Jersey means you will pay higher prices and have a higher interest rate on your mortgage, so why wait.
Rich,
Thanks for giving me a good explanation for my clients of why now is a good time to buy if you're an investor.
Fran
Rich,
You've got some great information throughout your blog! I'm tippin' my hat to your wealth of information!