real estate broker

Gazing Into the Crystal Ball: When Is the “Best” Time to Buy a Home or Investment Property?

Have we hit bottom yet in Southern California?   I’d love to look you straight in the eye and confidently predict “yes, this is it, break out your checkbook and buy, buy, buy,” except for one thing.  I’m not a fortune teller and I don’t have a crystal ball.   In fact, I can honestly tell you I have no idea where the bottom will be reached (presuming it is not there already.)   Moreover,  as you already probably know quite well,  no one can predict the future.  Even the professionals to whom we pay good money for their prognostications can’t do it either.  Not your stockbroker, not the ratings agencies, and certainly not the big name pundits you see on TV.  For a hilarious if somewhat long video of some famous folks (like Ben Stein) who got it famously wrong on a very public forum see this:

That might be enough to make you sick to your stomach, and at least,  to swear off financial pundits forever.  Unfortunately, real estate punditry is not much better.   While real estate tends to move in much slower cycles than the stock market, and is therefore somewhat easier to predict, no one will know when the bottom has been hit.   Everyone wants to buy at the bottom, to have something to brag about over the water cooler if for no other reason.  While there have been some “green shoots” on display recently, many are bracing for the next wave of foreclosures and layoffs.   However, as real estate broker and blogger Frank Borges Llosa put it in his blog, the exact correct day to buy is simply “the day you stop caring about the bottom of the market and you decide you are ready to live in a place for 5-10+ years and enjoy life.”

Of course, even Frank’s sound advice falls a bit short if you are looking for an investment property, like a duplex, triplex or fourplex.   However, there are some rules of thumb I like to consider.  How close is the cost to the replacement cost?  What is the potential appreciation?  Since the San Fernando Valley is pretty much built out, they are not making any more land around here.  (The same cannot be said for some other areas, such as Riverside or San Bernardino.)  Given that construction costs are likely to go up with increasing regulations and costs of materials, the closer you can get to buying something  at or below replacement cost, the less risky the investment — presuming it is in an area where the rental demand will remain relatively stable.  Can I make money off it — if not right now, when?   What is the job climate like?  Admittedly, Los Angeles is not as economically healthy as it has been in the past, but there are some things that will always make this area desirable to many — the climate, beaches, entertainment business, etc.    Finally, real estate is an illiquid investment and one in which the market is still quite inefficient — which can be a good thing if you are a buyer and can score a property for significantly below market value, you can protect yourself against some further declines in the market.   (Good luck trying to buy a stock below market value!)

In conclusion:  I still love real estate as an investment — the long term fundamentals are hard to beat, notwithstanding the day-to-day uncertainties of the market.   Just make sure to buy the right property and lock in your fixed rate financing.  How can you find a great deal?  You’ve got to work at it, I’m afraid.  But I can help:  send me an email and I’ll get you started with daily MLS search information tailored to your particular wishes.  Then I’ll help you sort through the choices.  Also, I may already know of a suitable property:  don’t be afraid to call me anytime.