Is it a good time to invest?

When is the best time to invest in real estate?  People ask this all the time.  The real estate market is no different than any other type of market.  You buy when you can get a deal; and you can get a deal, when the supply is greater than demand.  When is this perfect market going to come?  Well, it is already here in many areas of Santa Clara County. 

Granted, I am always the first to tell you to buy in the best area that you can possibly afford; this typically means the areas with the best school districts, in my opinion.   However, your rental unit does not necessarily have to have the best school district in order to be in demand, nor be able to build equity as the tenants pay off large portions or most of your mortgage payments.  It depends on the amount of money available for down payment to control the monthly payments.   After all, it is all about holding onto the property without sinking too much money into it while gaining equity appreciation.      

If you have been following my blog and website, you would have noticed the volume of sales decrease and inventory increase in Santa Clara County during most of the year.  Outside of the "desirable" areas, homes have been taking much longer to sell, therefore, the buyers in the affected areas are in better position than ever before to negotiate good deals.  Unfortunately or fortunately, depending on whose eyes you see with, these buyers, looking for primary residences, are sitting on the fence unsure as what to do.

The reality is the longer they wait, the harder it will be for many, especially the first time buyers with no equity to utilize in the purchase, to get into those fabulous deal they dream of.....  And, they are continuing to pay their landlord's mortgage while being unable to write off any of their own rent payment.  A segment of this buyer market, those without down payment, simply cannot buy now, so by default, they become renters. 

What this means is that these once potential buyers are now renters because 1) money is more difficult and expensive to borrow then before and 2) they simply missed the opportunity back when almost anyone could get a loan if they wanted.  Those that can afford to buy, are trying to time the market and are slowly being priced out of the market all together.  If they had bought a few years back, they might have gotten in at much better prices, but by simply waiting by the sideline, have watched prices rise.   

What does this mean for investors?  Bottom line: rental market is heating up because the sales activity is slowing down and people who were once buyers are now renters; and there is much in which to choose from.  This is an excellent time for investors to pick up properties and build equity near where they live.

What are the positives indications that it is a good time to buy for investors?

1. Money is still affordable -- sub 7% for the bench mark 30 year fixed jumbo rates (compare that against your credit card rates).
2. Employment situation is fantastic in Silicon Valley, venture money is coming back and companies are hiring again  
3. Rental prices are beginning to rise, signaling a hot rental market
4. More choices for buyers because inventory is increasing; if you have the money, you can get a better deal now then ever before.

The key in investment always, is to hold onto it mid-term - meaning hold onto it for at least 5 years - and not short term in hopes of flipping it for a profit.  That is a much riskier proposition, especially now with increasing inventory.  Real Estate is cyclical in nature, like the stock market and other markets.  It is the general consensus that we are going to a corrective cycle after the ultra hot market of the last few years. 

Silicon Valley draws a lot of high tech talent from other areas of the country and from abroad, these new workers are initially shocked by home prices, so even those who can afford to buy, rent for a time being to get acclimated to the lifestyle here and figure things out.  After a year or two, these well paid high tech new comers realize they have to buy homes to avoid paying high rents and to gain equity in proportions they had never imagined from where they came.  Remember, most of us don't work have stock options from Google.  I see this all the time from people who moved here from other places.   

Looking at longer terms, this means in a few years, the investors who will have bought now, will be in much better position to sell because we would probably be in a different cycle then; and the all the employees that the high tech industry is hiring right now will be in a situation to buy then.  

Be ahead of the curve; those big players like Donald Trump say they buy when people sell and sell when people buy.  The situation favors investors who have the money to buy now; take advantage and acquire now to sell for profit later.         

Steve Mun, Silicon Valley Realtor
http://www.stevemun.com/