BUY NOW! Part IV – Supply and Demand & Real Estate Investors
by Evan Vanderwey on 21/05/10 at 11:16 am
Today’s post is short. But it lends credence to the previous posts.
Investment purchases in the third and forth months of this year slowed almost to a halt.
Joedy Patrick, a local Real Estate Investor and owner of Entrust Great Lakes, a self-directed IRA plan administrator (his group allows investors to purchase real estate inside their IRAs to avoid or defer taxation – reach him directly at 517-980-5143) agrees that investors by and large have opted to wait until the stimulus money has worked itself out of the system (unless the deal is really good).
Foreclosure is the name of the game on a couple of levels. First, these are the deals that are attractive to investors because they can get homes at a deep discount. Second, it is the presence of these deals that keep the total market low into the future, which keeps them from reaping the reward from selling the properties.
This is the tricky part – both of the following statements are true:
~As soon as property values here in mid-Michigan (or where ever you are) start to rise, you will see fewer foreclosures.
~You will not see property values begin to rise until you see foreclosure numbers begin to return to normal (very low) levels.
Investors know that property values will rise again. The question is when?
Let’s say that you and I each buy a similar home in the same neighborhood for the same price. I make my purchase this summer and you make yours in 2012, two years from now. Later – let’s say 2015 – we each sell our home for twice what we paid for it. We both got the same return on our investment yet your annual return was better than mine because you only had your money in for three years and mine was tied up for five years to get the same amount of profit.
Now, renting the homes in the meantime can equalize these a bit, but many investors are looking to sell the home in the next five to ten years for a profit rather than be landlords for an extended period of time. The perfect deal is made at the bottom just before the market begins its incline.
They need to buy the home right, that is, for a low price.
They need to manage it well. Money put in covers money paid out each year.
They need to sell it for a profit as soon as possible OR hold it for income if rents received justify keeping the home longer term.
Investors understand supply and demand, so they did not want to compete with the frenzy of homebuyers who were after free money that was not available to them as investors. They are now looking at making purchases again.
The message for buyers is this: now that the stimulus money is gone, you’ll get a better deal. Buy Now.
