Buying Homes With Prices This Low

September 27, 2012

The answer to your question will be different for different people. There is no “right” answer. Most of us have circumstances that are unique that others do not share. As an extreme example, a recent news story reported on an investor who bought 650 homes in Michigan all at one time.  He paid about $7,300 for each house. How will he do? Only time will tell.

Reader Question: Monty,houses are selling at one third of what their market value was five years ago. Should I buy one, two or more?

Monty’s Answer: The answer to your question will be different for different people. There is no “right” answer. Most of us have circumstances that are unique that others do not share. As an extreme example, a recent news story reported on an investor who bought 650 homes in Michigan all at one time. Read about it here.  He paid about $7,300 for each house. How will he do? Only time will tell.

If buying a home for shelter, this is an excellent time to buy. Not only are prices competitive, but also, interest rates are exceptionally reasonable. I would recommend buying only one home, and selecting it from the MLS choices available on the open market.

The fashion in which the question was asked suggests that you are seeking a way to make money, not as a mechanism to provide shelter. The selling prices you quote in your market sound to me like foreclosure prices. Here is a link to an article entitled “Participate In The Foreclosure Market”. If you are thinking of bidding at the auction, I have listed questions below to ask yourself before you decide.

Will the housing market recover? It may, but there are forces beyond your control that could delay or even reverse the current trends. If you have not already, I recommend you invest time to learn the different opinions existing today. To get you started, here is a link to an interesting article where two experts are discussing this issue.

What level of experience do I have? Apparently, the investor I mentioned earlier had no real estate experience, but plenty of business experience and a lot of cash. Having a solid understanding of the local market and knowing specifically what will be involved is highly advisable. Not all markets in the U.S. experienced the reduction your market apparently is experiencing. Most all the submarkets and price ranges in the markets that were most affected had variations, sometimes significant. Assuming an opportunity exists, it will not be equal across your local marketplace.

What part of my investment portfolio should I commit to real estate speculation? Some people are one hundred percent real estate but most are somewhere between zero and twenty percent. The fact you asked the question signals some uncertainty on your part. Only invest what you are willing to lose. Consider starting with small steps and accelerating if things go well and as the path forward becomes clearer.

How is my timing for getting into the market? There have been plenty of organizations, and individuals, buying and selling homes in this market for several years now. They know the markets, the neighborhoods and the investments required. I suspect their presence in your market place will insure competition. In most markets, particularly the hardest hit, prices have risen for many months.

What method or tactics will I employ to capitalize on the local situation? There are a variety of different methods to learn and receive benefit, in addition to buying and selling. Will I sell these homes or rent them? Would I consider hard money lending? Can I partner with someone already in the business for a partial ownership? Could I research property before an auction for someone already invested to learn the ropes?

I hope this information is helpful with your decisions. If you have more questions, please ask me.