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2008-01-22 09:22:00

The Art of Contrarian Investing - Buy Real Estate Now!

Many real estate pundits and investors say that they are waiting for prices to come down, before they purchase an investment property.  That may make sense for investors, because they want the property to have a positive cash flow right away (be profitable as a rental).  If, however, you are a buyer wishing to own a home to live in, it makes tremendous sense to buy now, when others aren’t buying. This technique is called contrarian investing, in other words, buying when others are selling instead of buying when everyone is trying to buy. 

Here are the major benefits to buying now…

  • Lots of sellers (including banks and owners who are upside down), are highly motivated to sell.
  • Sellers are offering incentives, like paying for closing costs, interest rate buy downs (to help the buyers get better financing), seller financing, price reductions, paying for HOA dues or club memberships, parking fees, etc., in order to get buyers to bite.
  • Lenders now have to operate in this more restrictive and competitive market and are offering incentives to get buyers to use their services.  Some lenders are offering to pay for appraisals, waive fees, waive prepayment penalties and give other cost saving considerations.
  • Little competition from other buyers means less chance of paying too much(this competition caused buyers to probably overpay during the last rising market frenzy).
  • Historically low interest rates are here-now, but they may be higher in the future (Fed  Governor, Frederick Mishkin, was quoted in USA Today on November 6th as saying, “the rate cut could be reversed, if the economy performs well or inflation intensifies “).
  • Buyers will be living in their own home, benefiting from pride of ownership, future appreciation, and will probably experience a better quality of life.  They will not be paying rent (for something that will not appreciate for them, as renters).
  • Buyers may receive mortgage interest writeoffs… for income tax savings.
  • Market downturns affecting value, would be on paper only.   The lower value of property, in a flat market, has minimal  or no adverse impact, unless the buyer decides to sell during that time. 
  • You will get the inviting prospect of significant gains when a rising real estate market returns (as it has done multiple times in the past).  Buyers should plan on holding property bought now, for at least five to ten years to further ensure profitability (the more time the home is held, usually means more equity and profit when selling).
  • Though stock and real estate investments are both good , the stock market is likely to have more frequent and unpredictable changes. (An article by Jason Hartman in Broker Agent News, 2007, had this: “That's because the stock market is a fickle thing, unpredictable, intangible asset that has little, if any, tax benefits. Real estate, on the other hand, is far less volatile, has superior tax benefits, significant cash flow and a high degree of leverage”).

Additional considerations for buyers are:

  • Use a licensed REALTOR, to help protect you and find listings suitable for your needs.
  • Get pre-approved(not just pre-qualified), by a couple of professional and experienced lenders.
  • Review the statistics from the San Diego Multiple Listing Service (MLS), to help you determine market time and average/median list and sold prices.  Visit www.sandicor.com/statistics
  • Ask your REALTOR to find the homes that have been listed the longest (these sellers are most likely very motivated).
  • Try to buy without emotional attachment to a particular home…you can always turn one that isn’t your first choice, into your dream home.
  • Get a home inspection done, to see needed work.
  • If repairs are needed, get a licensed contractor to give you an estimate, in writing, to submit with your offer.
  • Get your own buyer appraisal …a headline in The Washington Post by Kenneth Harney, February 3, 2007  said that  … 90% of appraisers were pressured to inflate prices.  It makes sense then, to have an appraiser working for you, not the seller, before you buy.
  • Use a cover letter, summarizing your market trend statistics, appraisal information, loan approval, home inspection results, contractors estimate etc., with your offer, to show the seller that your offer is sound.  (A sample cover letter follows.)

Cover Letter for Buying Property.


We are very interested in buying the property at________________________________________________________________. 

Our offer is based on our own appraisal (attachment A), a home inspector’s report (attachment B) and a contractor’s estimate of necessary repairs (attachment C).  In addition, an analysis of the market trend in the subject property’s zip code (attachment D) is included.

Please review the attachments and our offer.  Let us know your decision by ______________________.  We hope you will respond favorably or make a counter offer.  With the market in its current downward trend, we believe our offer is fair and reasonable.  Please call us if you have any questions.

Sincerely,

  • Ask your REALTOR to deliver your offer, in person, to the listing agent, to improve your chance of getting it accepted. 
  • Remember to compare lender financing options and pricing, on an “apples to apples basis”, not just on the rate quoted.

Remember this quote…”Be willing to do today what others won’t do, so you’ll have what others won’t have tomorrow”.

Good House Buying!

(Fred Eckert, is a 15+ year veteran Chicago Title Insurance sales representative. He is an assistant vice president and specializes in foreclosure prevention, Short Sales, Charitable Institutions, Bank Owned properties and Education.  He has a Master’s Degree in Business and is an accomplished speaker and trainer.  As a retired USN pilot, he also held positions as Legal officer, Safety officer, Operations officer, Detachment Officer in Charge, Class Desk Officer and Division officer.  He is a member of the Coronado Assn. of REALTORS, the Pacific Southwest Assn. of REALTORS, the San Diego Host Lions Club, the Referral Network San Diego, the San Diego Creative Investors Assn. and the North San Diego Real Estate Investors Association.  His book, “198 Super Things to Think, Say and Do”, has been well received in the Investment and Real Estate communities.)

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