Is now really the time to buy real estate?

[Paul B.]

I was talking to a friend about how I think now is a great time to pick up some SFHs and small MFs on the cheap (we're talking about an average of $40K per door), and holding them for current cash flow (rents of 1.5% to 2% of cost) and long-term gain (VERY long-term).

His reply was that he thought there was still a significant overhang with a lot of real estate that needs to be foreclosed on and sold. His gut tells him that we'll see another 20% to 30% decline as all of this inventory hits the market, so he wants to wait a year, maybe two, until he sees a positive trend.

My thinking is that the lower-priced, NOO properties don't have much more to go down, and if they work for me at today's prices and I'm going to own them for 10 to 20 years, I don't really mind if I miss timing the absolute bottom by 20%. Plus, I'll likely still be a buyer in a year or two, so I'll still get the benefits of that slide, should it happen (sort of like dollar-cost averaging for real estate).

He agrees that it's impossible to time the absolute bottom, but he'd still like to wait until he sees a reversal in the price trend. I think he's applying the same philosophy to real estate that he does to stocks, which is that he's content to miss out on buying at the bottom IF he's convinced that prices are header higher. I get that, but I wonder if that strategy makes sense in real estate. Maybe it does, and I'm being too eager.

Also, for those of us who are going to borrow money, you have to consider that interest rates could be higher in a year or two...

Your thoughts?