Why the Property Price is of Low Importance
Too many potential real estate buyers pay way too much attention to short-term price changes. People are so worried that prices might drop a little and feel that maybe they should wait to buy something. So if you think you can predict the future, follow your beliefs! However, the reality is that the price, within reason, really should be a secondary matter in your search for a good property to purchase.
The main reason that price is less important is that individuals who want to increase their net wealth from real estate ownership, which is the goal of many buyers, should only be purchasing property that they will hold for a long time. The longer the better and a minimum of five years is probably the breakeven point to start building wealth. It is more likely than not that down the road, years after our economy has sprung back to life, real estate prices should be much higher than what people paid for properties in the next twelve months.
Affordability is now
In 2020 or 2022, you won’t even remember the 2012-2013 price fluctuations. You’ll just be gloating to yourself how brilliant you were buying into the market ten years ago. Not only will you have purchased a great property at the most affordable pricing seen in decades, but you will probably have locked in an outrageously low interest rate on a mortgage that can be fixed for thirty years!
But, what if you buy and prices drop a little? Who cares! It won’t matter because you purchased a great property that you love for all the right reasons. You want to own real estate and any slight dip in the next year or two should be a wholly irrelevant short-term blip on the radar of a long term real estate holder.
In addition, in many areas right now, your monthly payment for ownership (including principal, interest, HOA fees if any, property taxes, and repairs) may be close to or less expensive than renting. That alone is an amazing turn of events in the history of personal residence ownership. This is more likely true for moderately priced properties. Even expensive, untouchable properties a few years ago are astonishingly affordable right now!
Buying is not for everyone
Now this doesn’t mean that it is the right time for just anyone to buy property. If you are not 100% sure you will own the property for a long time, it is probably smarter to stay a renter. If you move often, renting is probably a better option..
Additionally, this doesn’t mean that you can just buy any property to build wealth. You should probably avoid properties that need:
- Significant rehabilitation work
- Properties in HOAs where the association is in bad financial shape
- Properties in areas where there are lots of foreclosures, high vacancy, near lots of buildable land
- Areas where the local economy is in desperate shape.
Rarely are those wealth-building purchases. Go for the properties that are in better shape or in more stable areas with jobs and economic development.
For buyers who are too focused on price, are worried about short-term price drops and are holding off on buying, we long-term holding real estate buyers can only say thank you so much! Please keep obsessing over those monthly housing price reports and stay on the sidelines!
With less competition in the market, it makes the process of finding a great home to secure, and with those incredibly low interest rates, only sweeter for the rest of us who are charging forward to buy a property in the best buying environment in a generation!
Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.