The basics of real estate investing have never been more important than they are right now. I read a headline on Yahoo! that Countrywide Home Loans has announced a loss last quarter of $1.2 Billion. I read in the Kansas City Star that some analyst are expecting this real estate correction to last into 2009.
And while I cannot tell the future any better than you I can tell you that perception can become reality. For that reason alone I urge you to make sure that when you are purchasing your next income property that it makes sense financially to do so.
Listen, markets go up (we like that) and they go down (we like not so much). During a Seller’s market it might be tempting to purchase income property on more of a “speculative” basis. A little negative cash flow may be acceptable so long as there is a belief that you will make money on the appreciation on the back side. I’m not advocating this! Just merely pointing out behavior.
But the real estate market here in Kansas City has come to a standstill, overall. Yes, there are definitely some areas of town where appreciation is still happening. Population growth and housing demand don’t stop just because the credit crunch hits. But there are also many parts of town where days on market is soaring and prices are softening.
As I have always advocated and now yell from the mountain top, do not purchase income property you cannot afford to keep. Make sure that you are honest with yourself on the expense expectations including capital improvements and vacancy. Make sure rents will cover your PITI PLUS the improvements and vacancies mentioned.
Don’t gamble with your retirement worth having. There is too much at stake. Now, if you are in a position to buy and buy right now, you should be smiling. But if you are in need of selling because you got caught speculating, you are probably nervous. You should be.
Just look at the slippery road caution sign. It doesn’t say stop. But it does say proceed with caution and be aware of the pitfalls. The same is true with your real estate investing.