Real Estate Investing: Time As Important As Location

Real Estate Investing: Time As Important As Location

The success of any property to the greatest extent determined by its location. This is an indisputable known fact to any professional market players. The concern of location has led to the fact that the vast majority of real estate investment is made, almost without regard to the time factor. Cost is ideally located property always will be higher than the cost of the property located in the less popular areas of the local market. However, market trends are subject to all of the objects, to a greater or lesser extent.

Respect for fundamental principles of investment in real estate is not a guarantee against losses. All investors, including institutional, have lost large amounts of capital because they purchased a property when the market was at its peak, and then sold it at a time when the market no longer supports the old price. Examples include the experience of Japanese investors in the late 1980s, pension funds, as well as the recent experience of investors.

According to the National Board of Governors of real estate investments (NCREIF), even the most conservative investors suffered heavy losses in the value of their real estate over the past few years. In the third quarter of 2009, their property decreased in value by an average of 26.5% compared to 2008 – in accordance with the NCREIF, which tracks the rescue of more than 6,000 objects that are owned by institutional investors.

The average annual increase in real estate prices from 1979 to the first quarter of 2011 was negligible – 1.1%. On the other hand, institutional investors received revenues from property 5.1% annual growth during this period, except for times of crisis.

As income levels in the pre-crisis period increased every year, capital losses were the result of changes in capitalization rates. Thus, the selection of an optimal time to purchase real estate is a key factor.

When the right time comes?

So how do investors find out when can they invest? Despite the fact that a large lack of information about the underlying performance of the real estate market there is, information that would be reported on the optimal period for acquisitions, almost non-existent. Default tool to reduce capital losses are expert estimates.

Estimates are good for determining the value at a particular time. Since the estimates are highly dependent on comparable sales, as well as comparable capitalization rates and discount rates, the assessment will show just how much everyone pays at the moment. Estimates do not provide information about the risk of capital loss. Thus, expert judgment may give a false sense of security.

Given that regulators, banks and buyers – they all rely on the assessment, one can imagine how a false sense of security can spread throughout the commercial real estate market. This dependence gradually led to a massive acquisition occurring during periods when the risk of losing the capital was the largest.

An example of the consequences of this systemic risk can serve as a real estate fund of Wall Street, which has gained more than 80% of its properties in 2007 and 2008. Managers then had to lower their cost of more than $ 1.5 billion. The key point is that, when an investor buys it is equally important (if not more) than the one where the net assets acquired.

Skeptics do not have to walk too far. In 1989, Mitsubishi Estate Co. It acquired the complex area of ​​almost 90,000 square meters. m, and in early 1990 the company suffered significant losses when commercial real estate throughout the country has lost half of its value. The Russian market is also already has a history of investment losses, but will be able to count them correctly, not earlier than the market will become more transparent.

“Location, location, location, and once again location” is a familiar expression and location of the object is really very important. But for now, ignoring the time factor proved to be too costly. Although predict the most optimal time to purchase real estate is almost impossible to significantly reduce the risk of capital loss, the investor should not ignore the time factor.


If you’d like to become the proud owner of a beautiful home in the “Northeast Kingdom”, or any of Vermont’s other beautiful destinations, contact us at PallSpera today. We’d be delighted to help you find the home of your dreams, the home you deserve. Our specialty lies in finding properties that match every buyer’s unique needs and preferences, ensuring that every sale is a perfect match. With over 25 agents on board, our team is ready to begin your quest for the ideal abode.

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