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by: Brian Fricke
Depending on where you are in America right now, real estate might look like a
very tempting
investment. Across the board, housing prices have dropped by 50% or more, and
interest rates
have never been lower in our lifetime. What could possibly be bad about taking
some money
and putting it back in the housing market right now?
Unfortunately, quite a few things can be bad. Because in this market, in this
economy, the
money you’ll be spending is only part of the equation. The other, more difficult
part is how
you are going to get that money back.
First of all, just because the price of a property has dropped by half doesn’t
mean that
property is undervalued, and that all that equity is going to come back sometime
in the near
future. Remember those real estate prices that kept climbing and climbing? We
just got out
of that bubble, and some experts feel the recent price drops were more along the
lines of a
correction. And the fact is, whether or not prices will eventually go up (and I
do believe
they will), and regardless of how high they will go, real estate is definitely
not the place
to make your money back in a short period of time.
The reason? Maybe you can buy a property at an attractive price, with attractive
terms. But
will you be able to sell that same property for a price you consider equally
attractive?
Is the area attractive to actually live in, or just to buy a property to sell
in? Because
the wrong area isn’t going to attract the right buyers. And by “right buyers,” I
mean buyers
who will be able to qualify for a loan.
Actually, I’m getting ahead of myself here. First, you have to qualify for a
loan –
something that is much more difficult now than it was during the heyday of the
real estate
bubble. And if you qualify? Again, your buyer also has to qualify, adding
another hurdle for
you to overcome. But for the sake of argument, let’s say your buyer qualifies
with flying
colors.
Think you’re out of the woods? Think again. Now the property itself will need to
qualify –
and that means appraising at a high enough price to justify the selling
price…and loan.
One casualty of the financial crisis is that the appraisal situation is just
crazy. Maybe
it’s because of the massive price drops and fear that we haven’t reached bottom
yet – but whatever the reason, it’s hard for us to make any sense of it. We’ve heard
stories from
those who have tried to refinance property and had their appraisal come in at
less than what
they owe. Since appraisers have to use comps of sales within the past 12 months,
they can
only deal with “post-bubble” property values.
Of course, with prices and interest rates so low, property is hard to turn away
from. So my
advice is be careful, be vary careful. Think about the location, the type of
buyers you’ll
attract and what the appraisal value might be when you try to sell for
(hopefully) a tidy
profit. It may be that right now isn’t quite as great a time as it seems to jump
back into
real estate.
Copyright (c) 2010 Brian Fricke
About The Author
Brian Fricke is the Author of “Worry Free Retirement, Do What You Want, When you
Want, Where
You Want”. For the last 6 years in a row Brian and his company – Financial
Management
Concepts – have been named one of America’s Top Wealth Managers. For more
information,
please visit http://www.BrianFricke.com
Source: http://www.articlecity.com/articles/family/article_3300.shtml
Tags:
Real Estate –
Is It Time To Buy
Yet
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