Real Estate Investing Offers Only One Likely Outcome: A Low Return

Dawn Griffin Posted by
Investment Spotlight, Market Conditions, Misc. Oct 2014

On October 6th the New York Times published this article, Real Estate Investing Offers Only One Likely Outcome: A Low Return, by Carl Richards. Someone sent it to me and asked me what I thought. So, here goes:

Part I:

First glance at the title made me want to disagree. But the author understands that you have to select a really sensational title to get people to keep reading. The article itself is full of common sense wisdom.

I love that he touches on timing with this quote: “… it becomes very easy to convince ourselves that we’ll find the perfect real estate deal and time both our entry and exit into the investment perfectly.”

What that quote illustrates is that timing is probably the most important factor in determining the value of real estate. But to some degree, timing is almost always the one thing out of your control when buying your home.

When buying your HOME, you cannot time the market. Most people simply do not have the luxury of time when looking for a place to live. I have one past client who affectionately refers to herself as my “forever” client. We looked (or rather waited and pounced) for over a year for her “dream” home to come on the market. However, the majority of my clients who are buying their homes have a limited amount of time to purchase. People who are relocating often have only one or two weekends to make a decision. Their options are limited to the inventory available when they have to make that decision.  Other people have to sell their home before they can buy their next home. Again they have a short window of time to search because they have to  find a home AND arrange for the details of their purchase so that it coincides with the sale of their current home. With the exception of the first time home buyer who is free-loading at their parent’s home, almost everyone is constrained by time.

Timing is also the key to selling. When it’s time for you to sell your home, its value will be determined by the sale of similar homes in a close geographic area at the time of your sale. But when you are purchasing a home it’s very difficult to predict WHEN you are going to sell? Will you get transferred and take a new job out of town? Will your third baby be a set of twins that literally causes you to out grow the occupancy limit of the home you are living in? Will you need to sell your home to move closer to an aging parent?

What’s happening in the larger economy and on a local scale within the 6 months of your sale will determine the value of your sale. And since those things are pretty much out of your control, don’t hang your retirement plans on home ownership. Makes sense to me 🙂

To be continued….

 

 

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