Timing Buying and Selling of Real Estate Investments
Buying and selling real estate is similar to timing other investments — stocks, bonds, mutual funds. But there are two important differences.
Most investments can be bought or sold within minutes at the market price. Buying or selling real estate takes months. That difference introduces interesting wrinkles in timing when to buy or sell.
Like other investments, selling at a high point, with the intention of buying back in at a lower price, is one way to make a profit. Here again, the difference in time required to complete a transaction makes life more interesting.
It's usually easy to sell a stock, wait a day or a month and buy that same stock at a lower price. When that stock continues to rise, there are often others that have declined but can now be predicted to rise again. The real estate market rarely offers those kinds of opportunities.
The other difference is that companies differ but most stocks are alike. Real property is always unique.
Selling requires one to either acquire a new residence, wait for a new opportunity to enter view, or buy back in at a higher price, hoping for yet greater increases. Along the way the costs of getting in and out are substantially higher than a few dollars for a stock trade.
So, what to do?
One clue is provided by the historical fact that many have and continue to make good money in real estate — even though the market has gone through several cycles over the last few decades. That last piece of information gives another clue — think long term.
There are several strategies for improving your timing options. One is to acquire property at bargain prices, either through seeking out foreclosures, or looking at property requiring substantial repair.
If you have patience, it's possible to find foreclosures that sell for anywhere from 25% to 35% under current market for that area. Read local newspapers and websites for Notice of Default listings and upcoming auctions.
It's also possible to find areas where sellers tend to be leaving, but there is some likelihood of a turnaround. The latter is possible — previously depressed neighborhoods in Manhattan, such as the Lower East Side, now sell at a premium. Areas in other major urban centers have experienced similar turnarounds. Again, you will need to research and think long term. Look for political activity of urban renewal efforts.
If you're good with tools or know someone who works inexpensively it's possible to acquire property needing substantial repair. Fixing a leaking roof, and repairing water damage through installing new drywall and painting, can increase the sale price of a home by 10% or more.
One key to making any of these strategies, and many others, feasible is to have as much working capital available as possible. That doesn't necessarily mean having a huge savings account. You need to be liquid and have access to money, not necessarily in your own account. Keep liquid, keep your credit rating high, and establish a good working relationship with a lender in order to have rapid access to financing.
Opportunities for profit, even in a market that's leveling off from historically high rates of increase, are still around. But only for those who are willing to exercise patience, do tons of research, and have the ability to walk away from any deal when illusions meet reality.