There's really not a right or wrong answer to this question, because real estate is largely more situational than most may realize. Generally, the public hears about "LOCATION, LOCATION, LOCATION", but most of the time, people make moves according to "SITUATION, SITUATION, SITUATION".
For instance, many potential buyers, sellers and investors will call in to our company and ask us "WHEN is a good time to make a move in real estate?" OUR REPLY will be, "well, please tell us about your SITUATION first, and we will decide what are maybe the best options for you as it relates to the case we are presented.
How do I know when to BUY a property?
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This is a convoluted question that may have a plethora of answers, but for the purpose of reading this article, let's start with the happy circumstances, then dive into the more difficult of circumstances most often presented.
Many people have heard of the term "UPGRADING HOUSES". You may have seen HGTV shows of happy young couples, expecting their first baby ready to move from a condo they purchased just after they got married, and now they are ready to go buying a home in the suburbs! This is usually a happy and exciting experience! Especially, if buying in the last 10 years up until May 2023 when the interest rates surged over a full percentage point in less than one year!
These folks usually CALL their family realtor friend to help them on their home-buying journey, get pre-qualified for a home mortgage with a lender, and go straight to home-shopping! HGTV makes this process look so quick and easy. There's always 1 of 3 homes that they need to choose from and by the end of the episode 30 minutes later, instant gratification! They even got the seller to cover some or all of there closing costs!
Home-buying can be this easy, but for most, there can be a bit more rigorous details that happen before getting prequalified with a lender. Maybe paying off a certain loan to lower the debt-to-income ratio to qualify for a certain loan type. Or another example could be, waiting 6 months while building the credit score to qualify for the best interest rate available at the time. As difficult as this may seem, the end result remains the same, home ownership!
Interest Rates are SCARY!!! - MYTH
Okay, sure. If we all took time to sit down and read the amortization chart on a 30-year FHA mortgage note, we would all go into SHOCK over the amount of interest that we pay over the life of the loan. However, unlike the stock-market, real estate is usually a longer-term appreciating asset. Most people do tend to move within 5-7 years of purchasing a home. But, generally speaking, the market, especially here in DFW is a strong housing market, and even in periods of recession and inflation, we are still lacking inventory supply, because of population demand still growing at an incredible rate in the Dallas-Fort Worth areas.
Around 90% of home owners purchased their home with a mortgage (that inherently comes with an interest rate on the loan amount borrowed). 10% pay cash. Most people can't pay cash, so they opt for borrowing money in order to achieve home-ownership sooner. From the years 2012-2021 in the DFW Metroplex, on average, home values appreciated 10% - 15% per year, and quite literally, home owners who bought their home just after the market crash of 2008-2011, could sell their home for 200-300k more than what they originally purchased the home for just 10 years previous! Plus add in all the principal that was paid over those 10 years as well! That is astounding appreciation of an asset in a very short amount of time!
How do I know when to SELL a property?
Real Estate is really fun when you sell a property that you have a ton of equity invested! Nothing like the reward of cashing out that hard-earned equity from a long-time family farm, or landhold that you just have no more use for. OR maybe retiring and buying that Class-C RV that you want to drive across America touring all the sites! For some (like the HGTV example), you are upgrading your home, and looking forward to creating a comfortable place to raise your children for the next 10 years! All of these examples are worthy of selling! No matter the reason!
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Some people have unfortunate situations in life that force them to sell a property..we call these the 5 D's of real estate...death, divorce, downsizing, disaster, debt, and default.
DEATH - This can be one of the hardest situations to deal with in real estate. Whether the deceased individual had a WILL, if they died intestate or testate, was the property in a Living Trust or trying to divide the estate between the surviving family members.
DIVORCE - As most all people who have gone through this difficult situation know, the best thing to move real estate quickly and timely is to have cooperation between the two separating parties, whether having a signed divorce decree or simply having an amicable sale before the divorce if final. There are ways to help in both areas.
DOWNSIZING - This is a less-challenging in the sense of emotional stress, but depending on the financial situation of the seller downsizing, they may likely need to move equity from the larger property (which could take longer to sell) to the smaller property (which typically sell at faster rates). This can sometimes result in missing the properties that you truly love while waiting for the larger home to sell to access the equity to close on the purchase of the smaller home. However, there are ways around this that we certainly can help with.
DEBT - As some folks may deal with this issue, the relief at the end of the process is tremendous. Americans are truly carrying more debt than ever in the generations previous. This can limit someone from truly living out their dreams in a land where the American Dream should easily happen. Shedding debt load by selling a property is a great way to hit the "RESET BUTTON" in life, and rebuild your dreams again.
DEFAULT - This is obviously a category that you never want to come into as a property owner, but luckily there are ways to shed the property before the bank ends up taking your asset and equity...AND MOST PEOPLE DON'T KNOW THIS!!! On the other hand, being a buyer for a property like this can potentially lead to automatic equity position just for buying distressed property.
How do I know when to Invest in a property?
Investing in real estate is actually quite basic. As mentioned above, even just buying a home for yourself and your family to live that is not exactly categorized as "income-producing" is still an investment. But, for this category, the real estate investors of the world usually have that basic understanding, and they are keen to leverage their money in buying homes that they can cash-flow or outright FLIP for profits.
LONG-TERM HOLD INVESTORS understand the power of time, and the cost of the investment of their money, carefully calculating a profitable return, regardless of the margin. Larger margins are the goal here, but letting someone else pay the note (maybe even more) means returns are likely to follow. As the principal decreases, the profits tend to be even more tangible as time passes. In some cases, re-financing the home to a lower interest rate or even shorter term (15-years) can be lucrative as well.
Some of the downsides to long-term investing in rental properties can be the fact that tenants do not always take appropriate care of the home (since it is not their own). This can result in loss of equity/profits and can lead to higher risk to the investor who owns the property.
As made famous on TV, FLIP INVESTORS take a much higher calculated risk when it comes to turning a quick profit on real estate. However, as the saying goes, "With much risk, comes great reward". There is so much more to consider when thinking about venturing into this area of real estate investing. Specific market knowledge is key to knowing what risks are involved with this type of investing. Having a competent and professional real estate agent can help mitigate these risks when it comes to estimating value returns. Most Flip Investors use real estate spotters to locate properties and gladly pay fees to scoop up great deals on and off market.
For more information on investing in real estate in the DFW Metroplex Area, call our office at 469-269-0405 or simply Register Here to have an experienced agent contact you to review your situation!