So our clients are asking, “Is it a good time to buy?” How many times have you counseled your clients when they ask you that question? Of course, you then determine: do they have a house to sell, do they have good credit and adequate down payment. Somewhere in there comes the question: “How long do you plan on staying in this home?”
I’d Like to Sell in Two Years, and Make a Little Bit
Inevitably, the potential buyers tell me five years. But they want to make sure they are money ahead in the next two years, ‘just in case.’ Now, I realize that we are coming off of a period of a few years where huge appreciation took place in a serious hurry…but that has now rooted in the minds of the consumer as the ‘norm’. The expectation. They should make a boatload off their house, and fast. They should be able to sell within a couple of years and not lose money, if they decide they don’t like the area, they decide to relocate, need a bigger/smaller house, etc.
I understand that people change jobs more frequently than in years past, which causes them to sell before they necessarily expected to or are prepared for. But I also think that a culture of immediate gratification has brought the mentality that because they want to move, and ‘need’ a certain selling price to do so, they should be able to have that happen, and happen now. (Plus get a fantastic deal on the buying side.)
The Party’s Over
Real estate is a long term investment. It always has been! It is wonderful when clients make a profit, but we can all see the financial mess we are in from when large profits happened in a short period of time. When you buy a house, you live in it: you have physical shelter, plus a tax shelter. You gain equity with each payment. If you maintain it well, and there is the usual, gradual appreciation over time, combined with your little chunks of equity paid each month, eventually it will grow in value. If the appreciation is faster, then that’s wonderful, and you have more options available to you: sell sooner, leverage the equity to expand, or cash out and buy a boat and sail away.
Responsible homeownership is not looking at your home like an ATM machine. Those days are over, and our industry will be picking up those pieces for a while. Now, we need to counsel our clients that real estate is real property, a real investment for the long term.
Steve Simon
October 16, 2008 at 3:47 pm
Most real estate transactions have aquisition costs in the area 3%. Double that for the disposition cost when you sell and you have a 6% deficit. Add to that the loss in interest on the downpayment for each year of ownership, the costs of insurance, property tax and maintainence and you tell me if someone os going to be ahead in less than five years, LOL…
The real estate investor is a different story, they are having someone else make the payments, but rents in the current market (in my home State of Florida) will not produce a positive cash flow; and there are large increased hidden costs, in maintainence, and periods of vacancy.
Buy real estate for holding periods of ten or more years, and because there is a strong tax liability you face for lack of deductions; or because you have multiple tenant making payments for you to build your equity on someone else’s back.
Do not buy if you think there is a flip out there waiting for you:)
Lisa Sanderson
October 16, 2008 at 4:03 pm
Even if it isn’t for the very long term, a real estate investment gives you something you can use and enjoy while you own it. You don’t get that from a stock certificate.
Dylan darling
October 16, 2008 at 4:26 pm
Real estate investing was out of hand the past few years, but many opportunites remain for long term investors. Most successfull investors will tell you that you better buy now and hold on to your investments for the long term.
Danilo Bogdanovic
October 16, 2008 at 5:23 pm
People are worried about not making a ton of money on their home, but they’ll go out and buy a $40K car that’s worth $35K the second they drive it off the dealer’s lot and only $30K (25% less) just one year later.
Am I missing something?
Missy Caulk
October 16, 2008 at 5:55 pm
I do think the sellers got spoiled. I hear that frequently. I tell buyers, I can’t predict the market, but they need to do a rent vs own analysis, if they are only going to be here a few years.
Teresa Boardman
October 16, 2008 at 8:15 pm
The day trading mentality is alive and well. I have a regular commenter on my blog who won’t buy becasue reant is cheaper and he is too afraid prices will go down. I have written on this topic on my blog several times and told the story how my own home went down in value the first three years we owned it and now iven in todays market is worth 4 times what we paid for it and the mortgage is so much cheaper than rent that we could rent a one room efficiency for what we pay each month. Same with the money in the stock market. It has gone up and down but is worth far more than it was when it was put in. I have left every dime in and bought some more as it headed down. I am thinking my most recent contributions will grow the most in coming years but it will be a few years before I know for sure. Thinking about buying real estate too. Call me old school but I still beleive in buying low and selling high, and I always do it that way too.
Thomas Johnson
October 16, 2008 at 10:42 pm
I always have told buyers that they should budget 10% to sell their home. So they need to deduct 10% from their home’s price and that will give them a quick “house day trader’s” net sheet. This memory jog helps keep expectations realistic.
Jim Gatos
October 17, 2008 at 5:37 am
I totally agree. Some potential buyers I’ve met either want me to “verbally guarantee” they’ll make xx amount of dollars in a certain time period (or they won’t buy). Others want me to tell them the future. I tell them if I had the power to do that I wouldn’t be wasting my time in real estate: I’d be in Vegas “working the tables” LOL.. Do you see a “turban” on my head? My name’s not “Criswell” (Criswell Predicts)…
Jonathan Dalton
October 17, 2008 at 9:17 am
Oddly enough, this is the discussion I had with some buyers yesterday … fortunately, they understand the realities of real estate and that it’s not meant as a short-term investment. One of their reasons for buying? To get their money out of the stock market, where the real volatility lives.
Robin Short
October 18, 2008 at 7:20 am
Do the math…one year of rent is $$ thrown away. Two years….$$$ thrown away. If you sell in that time, you will see that buying is a better net in the end. If after two or more years, you can see that paying yourself is a better net, then buy it!
Heather Elias
October 19, 2008 at 6:58 am
Thanks for all the comments! Glad I’m not the only one seeing this…read a comment in a letter to the editor of Time magazine, a reader wrote to say that “people effectively became speculators in home values rather than homeowners borrowing to finance a purchase.” I think that nails it.
Also, a late hat tip to my husband for the headline of this article, during a discussion we were having on the market…when he said, “When did real estate become day trading?” I must have had ‘that look’ on my face, because he said, “Blog post?” Yep.