Right now good real estate investors have a competitive advantage. For the most part, the real estate market has been in a tailspin, investors have either been on the sidelines or actively fighting with lenders to rescue some of their fallen capital. Owners that have a choice about buying or selling are choosing to stay put and those that have to sell face serious sharks in the water that smell blood.
Why Not Invest in Real Estate Today?
So what is the down to being a shark in the water? First, investors really need to do their homework. Just because something seems like a great deal does not mean that it is. Understanding the risks of the deal is important, particularly with new construction. With the high number of homebuilders shutting their doors or facing foreclosure, buying a new home might leave you holding a very bad bag. In this market, every property should be inspected thoroughly. The incentive to cut corners when building and running out of cash is extremely high. Before considering any purchase, be extremely thorough in your due diligence.
No one wants to catch a falling knife. Maybe if you buy something today, real estate prices decline another 10%, 20% or even 50%? Lets think about what would have to happen in the economy to see real estate prices fall 30% over the next 3-5 years. First, there would have to be no inflation. Inflation would be a sign of economy recovery. Rapid deflation might do it, but the likelihood of that is minimal. Second, we would have to see an increase in the current levels of inventory. Again, though some will disagree, this is also not likely. There is already a tremendous amount of unsold property on the market, builders stopped at least a year ago, some by choice and some by way of court ordered bankruptcy liquidation. So where is the additional 10-20% inventory increase going to come from? An economic recover means higher real estate prices.
Real Estate will Recover
What if interest rates go down? Again, this would imply a significant economic set back, which does not seem to be in the cards. The government has done everything within its power to keep the economy from disaster and for the most part it worked. It’s a safe bet that they will not let their work be undone. Expect the recovery to continue at a slow to moderate pace and real estate values to begin a slow climb to normalcy.