A common strategy used by some investors when it comes to real estate investing is to sit out the prime buying season (Spring and Summer) and tune back in during the Fall and Winter months. This move may appear to make sense, since there are generally more buyers looking to purchase when the weather is good. Who wants to go to an open house when there’s pouring rain outside?
At the onset of Fall, many families become less willing to re-locate as the school semester starts and the kids have to go back to school. This eliminates some of the competition out for single family homes.
During the Winter months, even more competition exits out, as some investors become too pre-occupied with: holidays, vacations, football, etc.
This would seem to suggest that the best time to buy would be between November to February timeframe.
In general, this strategy is a good play to try and secure a nice property without overpaying. The only drawback is – inventory is much more scarce during the Fall and Winter time of year. In a hot market, you will still have plenty of competition from other investors who are always actively hunting, rain or shine.
As it turns out, this was a strategy my brother was trying to employ to secure his second investment property. He passed up some pretty good deals in the Summer, thinking he could secure a better one for a cheaper price this Fall. I must say, the uptick in real estate properties has been nothing short of mind-blowing, unlike anything we could have predicted. Safe to say, he probably won’t be landing any “good deals” this time around.
Check out these prices:
This first property sold for $160,000 in February of this year. As an investment property, you would have had to come up with 25% downpayment, or $40,000. 8 months later, the property has been re-listed for $235,000. This is just the listing price, so who knows how much higher it will actually sell for? All the homes I looked at in the Summer were selling at least $20,000 above listing. I haven’t been following the market as actively this Fall, but my real estate agent assures me that the market hasn’t cooled down at all. In fact, most listings are going even higher above listing price than in the Summer.
But, let’s just assume that you could sell the place back on the market for listing price. That’s a $75,000 increase in less than a year. Even if you remove the 6% sales commission for the agents, you would have pocketed $60,900 in cold, hard cash*! This is a 152.25% return off of your $40,000 initial investment.
The insane return on investment is not just for a single, isolated case. For this second property, the listing price is $210,000. The latest update from MLS is that the property is currently “pending”, which means an agreement has been reached. Again, I would be very surprised if the purchase price was at listing or below. I’m almost certain the purchase price is for higher.
Just last month, this condo sold for $157,000. At 25% downpayment, the initial investment is $39,250. Removing the 6% sales commission off the sale price of $210,000, subtracting the bank loan, and subtracting the original investment leaves us a profit of $40,400, or 103% return on our original $39,250 investment*. How is that for making a quick buck?
Granted, in many cases, the investors flip the property before resale. From looking at these pictures, it looks like new cabinets and granite countertops were added. But nothing too fancy or extravagant was done. Even if you were to budget $20,000 for renovations, you would still have over 50% gains over a very short period of time.
The real estate market is just real hot right now – even as we enter the “non-shopping” season. Prices just keep climbing upward. If you invest in the right market with strong demand, you are sure to come out ahead.
*excluding capital gains taxes; though there are tricks to getting around this