February 8, 2012 by Benji
Recently a friend of mine posted this question on Facebook:
30 year fixed rate at 3.88 percent. Would we be stupid not to buy now? Will we be kicking ourselves 5 years from now if we don’t? Benji Rosenzweig, what are your thoughts?
I was thinking about their situation, and the fact that my friend is in medical school and doesn’t know where he and his family may be in 5 years. I posted this:
I would tell you the same thing I tell myself when at Guitar Center; yes that bass is beautiful, yes it’s on clearance, but 1) do you have the money today and 2) do you need it. If the answer isn’t yes to both, then it’s a sale price for someone else! Relative to your question, if you have credit, cash, time and effort to put into buying a house today, it’s a great time… if you don’t have all 4 of those… well there will be good deals around for a while. The interest rates may go up, but no one can control them, and they are a reason to refinance, not buy!
In the residential market today, if you can afford to buy, you have the credit, and you find a house that works for you, then yes it’s a great time to buy. BUT buying because interest rates are low, gives for another foreclosure dip if people are buying what they don’t need or can’t afford. That being said, as an investor – if you have credit, then cash flow becomes the big question. Can I put someone in this house that will cover the rent, taxes, insurance, maintenance the headache of being a landlord and leave some room for profit? Those are very opposing perspectives.
I am in the commercial real estate business; I see deals every day that would make sense IF you could get a loan! An NNN deal with relatively low purchase price can be impossible even if the annual debt service is low enough that you are positive cash flowing. The problem is that banks are not lending money to real estate investors. This leaves 2 players in the market:
- Owner occupied – If you own a business that is renting space or run a retail store, and you want to buy a building. As long as you have credit and cashflow in your business, banks are lending.
- REITS or other Real Estate investment companies – Those are the obvious, they are spending cash, and can afford to hold for a long time.
So, what do “average” people do? The easy answer is find out that a rich uncle died and left you millions of dollars to invest in real estate. The rest of us need to be creative. There is the option of limited partnerships, where you pool money together with a number of people and buy the investment together. If you know and trust the people you are working with, this could be a great option. You get the buying power of the cash today, with your prorated ability to invest.
Obviously this post is not intended to be specific financial advice. Consult with your attorney, CPA and financial advisor before making decisions.