What Time Is It?
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” – Warren Buffett
Many are fearful of investing in real estate due to our current economy. While this is understandable, it might not be the best choice for you. In truth, this may be the opportune time to buy:
A Primary Residence
If you’re staying in the area, there is a good chance that the home that you are buying has lost more of its value than the home that you are selling. If you choose to stay in the area, you will have the same risk factors, regardless of whether you choose to buy now or wait. Therefore, now might be a good time to get into something you like. In fact, many feel that it’s a great time to buy up in real estate.
Rental property
When the housing bubble burst in 2005/2006, the price-to-rent ratio in the metro area was significantly lowered. The price-to-rent ratio is the price of a home divided by one year’s rent on a comparable one. You might find a $500,000 townhouse, near metro, that would rent for $2500 a month or $30,000 per year. This would place your price-to-rent ratio at 16.6 ($500,000/$30,000). In years past, that same townhouse would have sold for $600,000. Rental pricing, at that time, would place the ratio at 20. Today, we have seen lower priced properties with rent ratios as low as 10 ($180,000/$18,000).
Going back to 2000, before the market really started to heat up, a townhouse, off Tuckerman and near the Grosvenor metro, would have had a ratio of 13.75 ($280,000/$20,400). Some look at the rental market as a good leading indicator for what home values will do in the future, since tight rental inventory leads to increased demand for all types of housing.
Is this the time to be fearful of buying? This is a personal choice. At the same time, many are seeing the current real estate situation as an opportunity to buy the home that they have always wanted. Others are seeing it as chance to invest in rental property.
This might be the opportune time to purchase investment property or to upgrade your current home. We would love to talk with you regarding your plans to buy or sell in today’s market.
