Is Now a Good Time to Buy Real Estate?

SEATTLE (Zillow) -- People always ask, "Is it a good time to buy real estate?" The answer is always, "Yes, but it depends." To make that determination, we first must understand the three most important words in real estate:

Long-term ownership
We buy property, whether a personal residence or for investment, in hopes we are financially better off down the road than we are today. The chance of that occurring is very low if one does not own real estate for at least five or more years. The reason is that transaction costs, repairs, monthly ownership costs higher than comparable rent and ownership hassles dictate that it is better to invest your money elsewhere and stay as a renter if you are not sure you will own long term.

If you're buying a home with the intention of staying for five or more years, then, yes, it may be a good time to buy.

Therefore, since you are going to be a long-term holder -- the longer the better -- you really should not be that concerned with short-term current market price fluctuations. Ten years from now, the home's value will be more than it is today.

What you should be concerned about is finding a house you "love," one that fits all the right reasons you want to own that particular property for a long time.

That could almost be the end of this article ... but there are a few more issues to consider to make sure it is a good time for you to buy. If you fail any of the below tests, you should think through the issues and whether it really is a good time for you.

• 1. You are planning to be a long-term holder, at least five-plus years.
• 2. For owner occupants: Payments are affordable and you have a steady job.
• 3. It isn't significantly more expensive to own over renting. (This one is very important.)
• 4. For investors: It makes cash flow sense, 4% to 5% or more cash on cash. The higher the better, but watch out for returns that appear too good to be true.
• 5. It is the right property for you for all the right reasons -- you "love" it!
• 6. It is fairly priced relative to the recent comparable market sales in the immediate area for similar properties.
• 7. You plan to own it for a long long long time!
• 8. Vacancy isn't too high in the area. This is very important, whether you'll be an owner-occupant or investor. Empty unstable neighborhoods or communities have a higher risk of vandalism and risk downward price spirals.
• 9. It is in decent shape and doesn't need much fixing up. Skip the junkers, the ones with foundation issues or anything labeled as "needs a little TLC" in the listing, as that means it is a wreck. Leave the fixer-uppers for the contractors. And doing it yourself doesn't usually save you much money.
• 10. It is not near a big vacant parcel, nonresidential-zoned parcel, empty or retail/industrial/religious site where you are not 100% sure what is going to be built or in use there. A new use of that land could affect the "quiet enjoyment" of your residential unit.
• 11. You complete the proper due diligence to reduce your risk as much as possible. Mind your contract terms and contingencies, pencil out your deal, get a couple of bids on financing and dissect your GFE, review the HOA condition, review the property condition, make sure you have the right type and amount of property insurance in place, make sure you adequately review the title abstract and title policy and everything else you need to do to lower your risk.
• 12. And you plan to own it a long long time!

Those three important words?
I laughed for reasons other than the obvious when someone once said "location, location, location" were the three most important words in real estate. We pay a handsome premium for "location"; is that premium worth it? It may or may not be, but "long-term ownership" are far and away the three most important words in real estate.

To summarize
Subject to the above issues, it is always a great time to buy real estate but:

• Not for everyone.
• Not at any price.
• Not just any property.

Find a house you love or rental property that makes sense, that you will own for a long time, is in decent shape, lock in a long-term mortgage and sleep well.

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including "Real Estate Investment -- Rental Properties, Foreclosures, Short Sales" and "Buying a House, Condo or Townhome -- Guide to Smart Purchasing" and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.

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