Good question! Not sure I know the answer. But, it seems to me every property deal must stack up on its own merit. So, when people talk in broad terms about the overall property market, I get a bit concerned.
Here’s why.
Let me run through a couple of situations to describe what I mean. The first situation is a so-called “terrible market.” All the naysayers are proclaiming doom and gloom. The second situation is where the market is “hot.” Everyone’s buying. Properties are selling quickly and for more than the asking price. Prices are going up.
In each situation I give two scenarios; one supports a buy decision, the other, a don’t buy decision. You decide which is better.
Here’s my question before delving into these two situations; do you base your decision to buy on the overall market or do you base it on the deal at hand? I believe your answer to this question will determine your success or failure in property investing.
Situation 1: Market is Terrible!
Everyone’s telling you not to buy. Bad time. Market is terrible; worst we’ve seen in years. Don’t even look at anything now. Just wait for the market to improve.
What if you come across a “good” property deal? A deal where virtually all the parameters stack up? A deal you’ve been dreaming about, but could not find before? You’ve never seen a deal stack up this good.
Now what do you do?
Here’s a few scenarios to consider.
Scenario 1: First, you run out and ask all your friends if you should buy it. Then you read all the general market articles you can find. Your friends tell you you’re crazy to buy it. All the general articles tell you “it’s a bad time to buy real estate.” So, you listen to your friends and take the warnings of the general articles and you make your decision. You don’t buy the property.
Scenario 2: Next, you buy the property based on your experience and knowledge of property investing. You’ve never seen a deal stack up this good. Why on earth would you not buy? Why on earth would you listen to the naysayers? You buy it.
Situation 2: Market is Great!
Now, consider the reverse situation where everyone’s telling you to buy. The market is great! You can’t lose! Never been a better time to buy! All your friends are buying and all the general property articles are saying there’s never been a better time to buy. What do you do?
What if you can’t find a property that stacks up under due-diligence? What if the deals just don’t work from a cashflow perspective? Or from any perspective for that matter? They just don’t work from an investment vantage-point.
Again, here are a few scenarios to consider.
Scenario 1: You’ve looked a many deals, none stack up. But, you go out and ask your friends what you should do. You also read many general property investment articles. Your friends tell you you’re nuts if you don’t buy now. Just find something – anything and buy it. You can’t lose. The market is just too good. And, the general articles tell you the same; market has never been better. Whatever you buy will work. Now is the time, don’t wait. So, you listen to your friends and the general property articles and you buy. You buy a property that doesn’t look good on paper – it doesn’t stack up; the numbers don’t work. But, you’re betting the numbers will improve when rents rise and capital growth kicks in.
NOTE: By the way, I’m buying property in Florida right now that investors purchased under this “cross your fingers and hope” scenario. I wouldn’t recommend buying a property that doesn’t stack up under due-diligence; no matter what the salesman, your friends, or the “experts” say!
Scenario 2: Next, you don’t buy. Deal doesn’t stack up. Forget it.
What’s your next move in the property investment world?