Buying at great price or just buying?

Question

I'm in no time full time investor or real estate professional but do have 2 rentals and have been looking for other properties to invest. Everyone is looking for a deal but would it be in itself to buy in this market? I mean it's always better to grab a better deal but with prices as they are would it make sense to buy anyway?

Don Konipol · Answer

I'm a little leery about claims of buying "great deals".  Most of the great deals people have told me about are really properties that are inferior to the properties they are being compared to, or properties that were purchased at market value but appreciated rapidly due to an outside force.  While below market buys are available, they are usually the result of long negotiations, persistence, unusual situations (such as 20 heirs having title to one property) or found sifting through the wreckage of bankruptcy court.

I have purchased many parcels of real estate, both improved and land, but only a few were purchased "significantly" under market.  If these under market  properties were common or easy to find, I wouldn't have purchased so many properties "at the market".  Purchasing a property at the market can be an excellent investment, you get a steady cash flow, a little tax advantage, and normal forces of supply, demand, and inflation should have you profit handsomely at sale time.  Sometimes you hit a home run - change in demagraphics, zoning, etc.  The important thing is to get set on an investment program that's realistic given your capital, borrowing capacity, tolerance for risk, time allotment, knowledge, talent and experience.

Leo Kingston · Answer

Over the years I've developed a portfolio that works for me because I know what I like and what I don't like. A property  might be a good deal or even a great deal, but it still might not work for me. This preferential system takes a while to develop, but it eventually takes over and then the choices become more obvious. I know other investors who do the same type of thing, but their preferences are completely different than mine because their resale market is different. Ultimately, it's all about knowing your market and what you're going to do with a property after you acquire it.

Mark Updegraff · Answer

Irina Gav - there is nothing wrong with buying at market rate if you're cash flowing.  I personally like to use perceived value when purchasing property.  That is the beauty of the Market, it changes!  If we can develop our skills for detecting market forces and predicting trends, then anything cash flowing today, has upside equity potential tomorrow.  I would also argue that the upside could end up being a better investment than an alternative investment that was purchased below market.

Cheers,
Mark

Mark Updegraff · Answer

Use real numbers to run your analysis, and set some goals on your returns.  If you have a rental property or two already you should be pretty knowledgable on how to do this.  You're going to need cash flow no matter what kind of market you're buying in.

Cheers,
Mark

Robert Adams · Answer

Andrew I disagree it is not always a good time to buy. In some markets, including my own (Las Vegas), it is a good time to buy right now. Sometimes the market drops drastically. During those times you would not want to purchase anything until it stabilizes. The housing market has ups and downs like most markets.

Andrew Jones · Answer

I think it is always a good time to buy real estate. It just depends on your exit strategy. If the market is climbing rapidly look into flips. If the market is down as it now look into rentals. You just have to find what will work in the current market conditions.

Account Closed · Answer

Now is a great time to buy.  Pay CLOSE attention to comps and the amount of days on the market of homes in your target area.  Move quick and have the plan for your end result and you will be fine.

Bienes Raices · Answer

This is basically how I do things as well--I'm very picky about certain things.

I'm still a newbie, but from my experience so far, it comes down to how much money/financing you have and how much your time is worth to you--is it worth X number of hours hunting for something that meets the 2% rule? Are you comfortable buying in bad neighborhoods, or buying properties that need to be gutted?

Mike H. · Answer

The only thing I'd add is that I'd be surprised if properties bought at "market" would really cash flow much. I'm in Illinois and if bought anything at market, I couldn't make money.

Then again, it might depend on what the market actually is. If you go to some rough areas, the market prices are essentially investor pricing anyway because they're the only ones buying. So I could see cash flowing at those.

But if you're in decent areas, I think it would be awfully tough to cash flow much of anything paying market rates.  The other thing I'd wonder is where you're at that you can't find anything below market.

Typically, there's bank owned homes in every town in the country these days and the bank owned stuff is almost always available below market by about 20% or more.

Irina Gav · Answer

Mark,
I meant that if the numbers are right and you still cash flowing then buying property at market price is reasonable. I thought I had a sense here on forum that you have to buy below market to win.

Buying at great price or just buying?

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