Buying and selling real estate is a complicated process for many people. As in nearly all transactions, there are often as many financial losers as winners.
So how do you know when it’s a good time to buy a piece of real estate? Below are four times when you should consider buying real estate.
1. The market has recently crashed
You’ll never time the market perfectly, but if the local real estate market has lost 20% or more in value, it’s historically safe to say that’s a good time to buy. There’s a possibility the market could continue to plummet, and that’s a risk you run.
But either way, you’re getting in below the peak rates and values. The goal of all investing is to buy low and sell high, even though many people do exactly the opposite.
2. It’s cheaper than renting
This doesn’t occur too often, but it sometimes happens in areas that have high rates of home ownership and a shortage of rental units. Be careful on this calculation, though: You need to factor in the costs of selling real estate, the property taxes, the renovations, and the risk of all those expenses going up, in addition to the risk that the sales price might be less than you paid for the property.
Buying can be far riskier than renting, but also far more profitable.
3. You can easily afford the property and pay it off quickly (if not immediately)
If you can pay cash for a property, and your opportunity costs in the investment world aren’t incredibly high, then paying once for housing makes a lot of sense. Make sure to factor in real estate taxes, though; in some places, this is actually higher than market rent!
4. You have inside information about the local area
Inside information about the economics of the local area is always a great asset when it comes to purchasing real estate, especially in business-friendly states like Nevada or Texas.
Have you caught word of a big tech company that’s about to relocate to the area? Or a new college or medical school? Any of these types of developments can affect housing availability and values, so inside information on future development might be exactly what you need to have the confidence to make the biggest purchase of your life.