When is the best time to buy real estate?

Buying real estate is a privilege. Once you understand that, you can understand why there is no perfect time to buy, other than when it works for you.

My mission is to share tips and educate others on the importance of investing where you can to build wealth at any stage of life. These topics are rarely taught or discussed, leaving many in the dark about financial literacy.

So, when should you buy real estate? Well, the answer is when you can afford it. Remember that time in the market is always better than trying to time the market. You can’t time the market. Historically, real estate has risen and fallen, often outperforming any other form of investing. So buy when you are ready.

What options do you have if you are not ready to buy a home? Rent. Get a roommate to split living costs and save money for the future.

In my younger years, I had multiple roommates and often rented out my extra bedroom in the house to other traveling students to build up my cash reserves. I also dog-sat and saved that money to invest specifically. You will get ahead if you prioritize investing in some form or another.

You can do other things to start building your knowledge before you have the cash to invest. Join your local Real Estate Investment group and start networking. If you learn how to find real estate deals and run the numbers, you can find the deals to bring to others with the money.

Because real estate is vast, you have so many options, so educating yourself is very important.

Learn about how to find deals first within your strategy. Finding a cash-flowing vacation rental is very different from finding a long-term rental vs. a flip-and-fix situation.

Let me dig deeper into each of these examples:

What are the most common methods for finding real estate properties?

What is the 1% rule in real estate?

The 1% rule in real estate investing is a guideline suggesting that a rental property's monthly rent should be at least 1% of its purchase price to be a potentially profitable investment. It's a quick initial screenshot to identify properties with strong cash flow potential. For example, a property bought for $200,000 should ideally generate $2,000 in monthly rent ($200,000 x 0.01 = $2,000). 

Here's a more detailed breakdown:

• Purpose:

  The 1% rule is a simple tool for evaluating a rental property’s cash flow potential. 

• How it works:

  Multiply the property's purchase price by 0.01 (1%) to determine the minimum monthly rent needed to meet the rule. 

• Example:

  If a property costs $150,000, the 1% rule suggests it should rent for at least $ 1,500 per month ($150,000 x 0.02). 

• Limitations:

  • High-Cost Markets: The 1% rule might be brutal to find properties that meet this criterion in higher-cost real estate markets where rental income is typically lower than the purchase price.

  • Other factors: It doesn't consider all other relevant factors like property taxes, insurance, maintenance, or vacancies, impacting cash flow, but you can add these costs in to be sure your numbers are correct.

Property Analysis 101

Many factors impact both the value and ROI of a rental property. When conducting an initial rental property analysis, consider these factors.

• Location: the location of the property. Is it centrally located? Are there amenities near that would make it appealing to renters? Is it in a saturated or undersaturated market?

• Income and Cash Flow: This refers to the money you can generate from this rental property. What is a reasonable rent to charge for this property? Do you have access to consistent tenants? Will the building be consistently occupied?

• Property Type: The property is residential, commercial, or mixed-use. Do you have flexibility regarding the intended use? Do you have experience as a landlord for this type of property?

• Vacancy Rate: This refers to the percentage of all available vacant or unoccupied units. I always calculate with a 30 percent vacancy rate to be sure the property will cashflow.

• Operating and Capital Expenses: The costs of owning, managing, and maintaining the rental property. How much are the taxes? Are there HOA fees? Are there required upgrades?

• Determining your cash flow is the most challenging part of this equation. To determine monthly cash flow, consider the following factors:

  1. Rental revenue

  2. Monthly mortgage 

  3. Property taxes

  4. Mortgage insurance

  5. Additional Expenses

     • Home insurance

     • Maintenance costs

     • Management costs

     • Utilities

I always like to round up with my numbers. I would much rather expect higher costs than to be underprepared and have an underperforming property.

Real Estate isn’t a set-it-and-forget-it.

Often, I read that investing in real estate is PASSIVE INCOME. To some extent, yes this is true but it’s not always that simple. Unless you have a property management company, you will have to put in some time and work. I really enjoy real estate, so I don’t mind managing my own properties. Some of the headaches that come with owning real estate are, well, the privilege of owning it. Everything takes work. Just pick the kind of work you enjoy, and for me, I don’t mind real estate. You will need to understand things break, homes need maintenance, renters do damage, and most importantly, your heater or Air conditioning will always go out in the absolute worst times. SO plan for it. Be prepared. Have a list of reliable contractors and don’t stress. Just navigate each situation as it comes!

I hope this brief post has helped you in some way. Stay tuned as I continue to share tips and tricks on the basics of buying and investing in real estate.

Lots of love,

XOXO

Steph

** These are my own opinions and ideas. Please use your own judgment when purchasing real estate. Hire a qualified Real Estate Professional who can guide you through the process**