Real estate is the ultimate example of supply and demand. Much is made about where home prices are and where they are headed. In a perfect world, every property you buy would be at the bottom of the market and sold at its highest point. However, if you are buying low there must be a reason for it. You are either buying a property that needs a ton of work or you are buying in a depressed area banking on growth. This works for certain deals, but buying where prices and demand are high isn’t the worst thing either. In the end, high housing prices aren’t too bad for investors.
Higher prices usually equal higher demand. If you break down the reason for this demand, it is because the property is located in an area where people want to live. The crime rates may be low, the school system strong, employment and economy growing and the property taxes affordable. If those things remain constant, homebuyers will always want to live there and pay a premium for it. Buying in these areas may take time to see appreciation, but these are areas of consistent growth and steady gains.
The alternative is buying low and swinging for the fences. There must be a reason why the value is where it is. You need to look at whether or not it is the property itself or the neighborhood. If it is the property, you can spend money to rehab it and see returns. If it is the neighborhood, you may have a tough time preserving and growing your asset. There will be costs to deal with vandalism, lost appreciation and difficulty keeping tenants in place. A good deal may look great on paper, but in reality it can be tough to make money on a property of this nature.
Some investors may scoff at the idea of buying in areas where prices have already rebounded. However, if the demand is there, prices will continue to take off. Eventually they will hit a ceiling, but if you buy in a strong area with high demand you are much more likely to see a return.
There are many ways and strategies to make money in real estate. Buying low and selling high is the name of the game, but the principle of buying in the best locations regardless of price will always apply. Good locations equal high demand and safer returns. You may not retire with these properties, but you are much less likely to strike out and you can always see steady growth. High home prices aren’t great when you are looking to buy, but when it is time to sell or rent, you will be glad you bought a property that is in much greater demand.
