Tuesday, February 26, 2008

Has The Housing Bubble Bottomed Out?

It seems that many would-be real estate investors across the country are on the sidelines waiting to hear the words, “the housing bubble has bottomed out” and “now is the time to get back into real estate investment.”

Forbes just published an article titled, “Surprise! Home Sales Spark Hope” citing recent data issued by the National Association of Realtors (NAR) which has sparked a bit of optimism from investors. The funny thing is that the data wasn’t good news at all. The report showed that single-family home and condo sales dropped by .4 percent in January and sales are now at the slowest pace on record since 1999. Coupled with the looming increases in the conforming loan limits, this news has sparked hope that the bubble has officially bottomed out.

I’m not ready to agree, but I will say that there is still money to be made in real estate right now. While the real estate market is generally reported in national terms, it is still a local market. Nationally, real estate has been declining, but that doesn’t mean that it is declining everywhere. Portland real estate and Charlotte real estate have been performing fairly well overall.

There is another important point to remember: Good investors make their money when they buy the property. I know that phrase might seem overused, but it is true. Anytime you buy a piece of real estate, you should know in advance what your plan for the property is (exit strategies), and how much you can afford to pay for it and still make the profit you expect. No investor should ever add appreciation into their expectations, especially if it isn’t going to be a long term investment. In my opinion, the best exit strategy—though it isn’t really even an exit strategy—is to keep the property for the rest of your life, and then let your kids worry about what they are going to do with it when you pass on.

Investors should remember that cash flow is king (another cliché...sorry). In a tough market, properties that have built-in cash flow are sure to better retain their values than properties that don’t. Investors who own cash flow properties don’t have to worry about how they are going to make their next mortgage payment; the property takes care of itself. Cash flow property isn’t going to make you an overnight millionaire, like people who were buying up Las Vegas real estate a few years back, but neither will it cost you. Buying cash flow property and holding it for the long haul is a tried and true way to build wealth. It has been, and always will be so.


Anonymous said...

A cash flow property will allow you to rent till the market again becomes a sellers market at a better value on the home.

Anonymous said...

Wrong. Portland real estate is going down - look at the month to month figures. It just hasn't gone down enough to post a year-on-year decline. That will happen shortly enough. google case-schiller and read the report yourself.