Posted by GL(ON) on July 16, 2002 at 13:40:24:
You bring up the question of market timing. This is something I could go on about by the hour but I will try to put out some points that I consider worthwhile.
Real estate isn’t like the stock market. It doesn’t go up or down every day and you can’t jump in with a phone call. If trends last years (they do) and it takes weeks or months to find and buy one good property (it does) then trying to time the market is like trying to tell time by the second hand on a watch. Investing is more like planting a seed in the proper season and waiting for the harvest.
So we are talking about trends that persist for years. How do you know when to buy? Anytime you can get a good deal is time to plant a seed. That means positive cash flow. Any time you can get positive cash flow you can afford to buy and hang on, even if it takes 10 or 20 years.
If I have positive cash flow I don’t care if real estate never goes up. The duller the market the cheaper and easier I can buy, and the better deals I can get. If I have pos cash flow I can make a living on the rents and in 20 years the rents will have paid it off. So you can buy $1,000,000 worth of real estate in a dull market, hold for 20 years until it is free and clear and make $1,000,000 if it doesn’t go up a cent.
But we all know it will go up eventually don’t we? Especially if you have ever been a renter.
One big danger is that you will hang on through thick and thin (mostly thin) then get out as soon as you can see a profit. Negative cash flow properties are especially hard to hang onto.
My father did this. He bought an apartment house for $275,000 in 1975 just before rent control came in, interest rates went through the roof, and inflation killed all profit. There was a slump in prices and profits that lasted until the 80’s. He hung on, paying the negative cash flow out of his pocket, doing all the work on the place himself, keeping it immaculate, for eight long years while the value was less than he paid for it. Then as soon as real estate picked up, he sold it for an $80,000 profit and congratulated himself for being so shrewd. Then watched it go up another $500,000 over the next 2 years.
So don’t try to guess what the government is going to do next, or where the market is going next week. Be aware of market forces that are like the changing of the seasons, but over a period of years. When prices are low have the courage to buy, when prices are too high to carry, look for opportunities to buy and sell - this condition occurs when the market is active. When prices get ridiculously high and all the commentators stop worrying about high prices, take your profit and get out.