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The best moment to invest in real estate

Updated on June 2, 2011

Real estate has always been viewed as a major way of creating and retaining wealth. Because of this, real estate has received major attention from investors, from books to daily TV programs discussing the best way to invest.

But with the recent problems in the mortgage market, it has become somewhat difficult to see if there is any advantage anymore in investing in real estate. Why doing this if you can see the prices of your properties going down, and the interest rate are skyrocketing? Many people that have tried to enter the real estate market in the last year has in effect lost money and some are have to suffer foreclosure.

Why so many problems with real estate?

The real source of the current problems in real estate is what is called subprime landing -- that is, landing for people that cannot afford more expensive loans. The problem with these loans, which usually take the form of ARM (adjustable rate mortages), is that the loans is not at a fixed interest rate. So, as the base interest rate goes up, the monthly payments skyrocket and there is no way you can keep with the increases.

In a sense, the reason why these people are having problems with paying their mortgages is that they couldn't affort the loan in the first place. Decreasing the initial price of payments in the loan did only increase the burden further in the way.

Prices are not going down everywhere

Another thing you need to consider when buying or selling real estate is that the prices are not going down everywhere. The areas that have been more affected by the current real estate problems are the places where the bubble of prices grow the most.

For example, Florida and Arizona had skyrocketing prices during most of the last five years. This means that properties in these places are in great danger of loosing value. When it was everything OK with real estate, many people payed much more for properties that what they deserved. Now, these prices are going down because there are not enough buyers.

However, prices are not going down everywhere. In some other more affordable markets, the prices is in fact increasing.

What to look for when investing in real estate

Good areas to invest in real estate still exist. You need however to look at the basics of the market. There are things that will always make for a good market, because people need to live somewhere.

The best indicator for real estate growth is number of jobs in an area. If new jobs are being created, then the situation of consumers will improve and they will want to buy new properties. Job growth is so important that it should be your main measure for the viability of a real estate market.

Other factors can also give you a good indication of the state of real estate: for example, the number of new cars in the street is an indicator of how well people are doing in their jobs. One of the first things people do when they are doing well is to buy a new car. If you see lots of new cars in the city, it means that real estate has also potential for growth.

How to find opportunities

In a market like this, there are many opportunities for real estate investors. They need, however, to do their homework and look for areas where there is a potential for growth, instead of areas that have already peaked, such as Florida or Arizona.

If you have some cash available, there are many opportunities in foreclures. When people are forced to pay their mortgage, they can become very motivated sellers. In this situation, if you have a good amount of money for investment it can pay off down in the road.

The current market is also giving priority for long time investors. If you just want to flip a house, the market will be very difficult, but if you want to buy low, stay with the house for several years and sell it later, this can be you great opportunity to make lots of money.

Real estate investing

After all, the avantages of real estate continue the same. You can still have somebody else paying for your mortgage, and depreciation of your property that can offset other taxes you need to pay.

You just need to be more careful and think about long term investing, instead of just flipping houses and make a few thousand dollars of profit. If this is your goal, then the current conditions can be really good for investing in real estate.


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    • midnightbliss profile image

      Haydee Anderson 8 years ago from Hermosa Beach

      nice lense with valuable information on real estate investing. thanks

    • mosquito catcher profile image

      mosquito catcher 9 years ago from Houma,Louisiana

    • Julian Dawson profile image

      Julian Dawson 9 years ago from Australia

      Thank you, a very informative article and great points.

      Take a look at some of the common mistakes amateur investors make.


      Jules Dawson

    • David Cowley profile image

      David Cowley 10 years ago

      Great info. Here is some more information on where to invest.

    • profile image

      Boulder Real Estate 10 years ago

      It certainly is an ebb and flow thing with real estate prices. Your thoughts on the surge of amatuer real estate investors due to tv shows and such are right on. I see that come up more and more as many people catch these shows and are lured into thinking it's 'easy' for anyone...

    • profile image

      eric 10 years ago

      Great info. The key here is buying right. Not buying a piece of real estate as an investment using your emotions. You want to buy properties that have been discouted in markets that were not overheated 2-4 years ago