A" Cool" Market Will Heat Up

Category: Finance, Real Estate.

People always ask me if this is a good time to buy real estate. I have the same answer for both questions: I don' t know.

Or they ask me if now is a bad time to buy real estate. More importantly, I don' t care. But if you' re buying a house to live in its less important. Don' t get me wrong- if you' re buying a property and plan to flip it in a few months, then the current direction of the market is very relevant. Ok wait, let me explain that. But whether the market is going up or down, I continue to buy and sell properties.

I' ve been in real estate a long time, and have made a decent amount of money buying and selling properties. Regardless of whether the market is hot or cold, it's going to change at some point in the future. A" cool" market will heat up. A" hot" market will cool down. Sure, it would be helpful to know the exact time a market will turn. They' re all 100% sure, but no one agrees.

Indeed, there are a lot of people that say they know exactly when the market will turn. Because it's impossible to be" 100% sure. " Simply knowing that the market will change in the future doesn' t give you a competitive advantage, anyway. Lets look at an example. It's like saying it will rain at some point in the future- it's true, but it doesn' t help you know when to bring an umbrella. I have a friend in California. He told me he was happy that he hadn' t purchased a specific property recently, because he knew the market was going to tank. We talked about the fundamental problems with the California market, like lax regulation enforcement.

So we talked about the property. It eventually rose in value to 800k at the peak. It turns out that the property he almost purchased at the time was worth 350k. Today it's worth 740k. (Oops. ) My point is that knowing the market will eventually change is not as helpful as knowing when the market will change. Simply knowing that there are more cycles in the future is not helpful. In the last 20 years, the Austin real estate market has gone through many cycles.

If you are buying a house to live in, its possible you' ll see many hot and cold cycles in the real estate market before you sell your home. When I purchase a property I look at how the appreciation of the neighborhood compares to other neighborhoods in the same city. So what's important? I' m not looking for a property that always appreciates. This might mean it depreciates at a slower rate. I' m looking for a property that does better than average in a slow market.

I also want a neighborhood that appreciates at a greater rate than average when the market is hot. Secondly, I look for properties in what I call" emerging areas. " In the past, I' ve seen the largest appreciation for properties that were not in stellar neighborhoods, but properties in" rougher" areas that were improving. While its hard to find anything other than general appreciation rates for a city, a good place to start is a local realtor who knows the market well, and who can tell you how different neighborhoods have performed in the past. Even if the market is currently cool these properties can be purchased relatively cheaply. Is there a new strip mine moving into an area? And if you wait for the next hot cycle these areas might turn from transitional neighborhoods to the new" hot spot. " While I can' t predict when a market will turn, I do look for different things that might affect a neighborhood. It might be a good idea to avoid surrounding neighborhoods.

For instance, if you hear that an old chemical factory is about to be turned into a mixed- use development with cute little shops and expensive houses, it might be a good idea to look at surrounding neighborhoods. On the other hand, there could be a new development that might increase properties. In summary, it's hard to predict the turns of the real estate market. But if you do your research on the property you are interested in and the comparative appreciation of your neighborhood, you can ride out the ebbs and flows of the market and come out ahead in the end.