Buy now or wait for a big dip?

[Brandon Monaghan]

I am 25, and I am looking into buying my first home to rent out as I'm always traveling. I am a bit nervous to buy right now since the market has just climbed since 08-09... any insight, advice, predictions, sentiment?

[Jeff Rabinowitz]

Housing prices are cyclical--they always will be. Housing is also priced inefficiently and there will always be people who must sell quickly due to personal circumstances and are willing to accept below market prices. Rents often follow housing prices (not always) but tend to change more slowly. If you find a great deal on a house that is in strong demand as a rental and you feel that demand may still be there even if housing prices decline you might be able to wait out any decline in prices without it harming you very much at all. Using a bit less leverage (placing a larger down payment) could help you stay above water but if the house is rented almost continuously and the rent more than covers your mortgage payment and expenses it may not be too difficult to wait for housing prices to recover if they should drop for a while. Notice the frequent use of "may", "might", "could" in this paragraph? Nobody can predict what will actually happen and much of the impact of any price decline depends on your financial situation. How stable is your income? Do you have adequate reserves?

There is a very real cost in delaying your entry into the game. I am one who was invested in rental housing before the previous meltdown. The meltdown cost me a fair amount (mostly on paper as I was not in a position where I was forced to sell anything). Many of the properties I owned have recovered significantly in price--some are still valued at less than I paid for them. I sold some at prices less than I paid for them. However, I also learned real estate and bought a significant amount of houses during the crash. I bought one house next door to another I already owned for less than half the price of the first purchase. I sold that house a few years later and made a significant profit. I repeated this several times. I would not have had the confidence to do this had I not already been in the market. Did the crash hurt me? Yes, but I am in a much stronger financial position now because I knew how to act when I saw opportunities.