Time and Money: Equally Important in Real Estate Investment

Time is equivalent to money when investing in real estate. 

Initially, when buying any property it pays to buy at the right time.  Real estate is a cycle. There is a boom and bust period as you can clearly see in this real estate roller coaster.  It is an interactive graph of the real estate trend from the 1890’s to present in the US.

Recently during the boom period, the real estate prices increased to historical levels.  This caused a major problem for a lot of investors and even end users.  A lot went into a buying frenzy to secure a property before the price further increases.  However, after a certain period the opposite happened in most states.  Now, a lot of those who bought during the boom period have a negative equity in their property and are facing foreclosure. Remember, it is good to sell during a boom market but it’s best to hold off from buying not unless you find a good value property. In a declining market, it is best to scout around for a property to buy and secure it if it matches your buying criteria.   

Meanwhile, most developers and investors utilize a mortgage facility to finance their projects and investments.   The longer it takes for their renovation or development to be finished, the more money they are losing in interest payments alone.

In fact, I know of a group of amateur investors who lost all  of the money they invested and more in interest payments from their failed development.  They were just a group of retirees enticed by a builder, who suggested they invest in a project with a possible return of  35% in two years.  It sounded very promising.  However, it took two years for their project to get an approval for development.  The interest payments ate away the money allotted for construction.  The investors had to shell out more money than they originally invested just to finish the project.  The project was a total flop.  Instead of a gradual increase in price as most developments are, the investors initially set the price too high to cover their costs and projected profits.  Their selling price was way above the prevailing market price.  The location of the project and the design of the units does not even justify their price.  After a long period of  "no sale", they had to lower the price several times in a desperate bid to sell the units in order to finance the construction.  It was terribly mismanaged. In the end, they sold the project at a loss to a veteran developer.  Some of the investors are still paying interest for the money they invested and lost in the project.  The veteran developer ended up as the winner in this failed development.  He bought it at a bargain price and at the time the project was almost completed.

Thus, when your planning to invest in real estate don’t forget that time and money is equally important!  It is easy to initially calculate the projected profits from the cost and  projected expenses.  However as I’ve explained, time is also equivalent  to money in real estate.

You can check out this related article I posted for a detailed example of calculating your net profits when flipping a property "To Flip or Not to Flip: Analyzing a Deal".