The Best Time to Buy Real Estate

Question: “When is the best time to buy real estate and plant a tree?”

My wife asked me two years ago about our plum tree. I said it still hadn’t given any fruit. Pretty disheartening. I’ve put a lot of work into that tree.

I bought it for her on our ‘wood anniversary’. The best research has led scientists to say that the fifth anniversary is the wood anniversary. So, not wanting to go against science, I bought a tree. It went way out in the yard but I carefully planted it in amended soil, watered it as frequently as recommended, and protected it from the roving deer that love to tear bark off baby trees.

That tree started out about three feet tall, so it wasn’t just a seedling, but I bought it pretty cheap at $50. I’m not sure what I spent on it over the years. On the third year it shot up and started putting out these really high long branches. The pruning guide recommended cutting it back and it was a little heartbreaking to cut down those branches that were obviously growing really well. What if they were the branches that would have borne fruit?

Last year I was mowing the lawn and noticed three tiny plums growing on a few branches. Exciting! Three whole tiny plums. They never really grew and one day they were all gone, probably stolen by some crow. Sadness again.

This year, all my work has paid off. The tree bloomed about a month ago with countless pretty white flowers and now is starting to grow more plums than my family could possibly eat. It doesn’t need me to water it very much any more. The deer don’t bother this big tree. I can almost ignore it until I’m hungry.

“So, when is the best time to buy real estate and plant a tree?”

-Thirty years ago

Ha. I’ve said it before that real estate is like my plum tree. It takes a long time and it seems like it is losing money. You have to put in a lot of work at the start and it costs a lot. But that little investment grows and suddenly you realize, a few years down the road, that it is throwing off money.

I can feel you thinking about how you or your uncle invested in some real estate and lost a bunch of money and that investment was a long time ago and it didn’t turn out. Now you are worried the same thing will happen with your investment money. That fear is what is stopping you. True, there are terrible things that can happen, like a fire striking your building. That’s why you purchased hazard insurance!

“But what if I forgot?”

What is the likelihood that you forgot to buy insurance, and a fire struck your building? How forgetful are you? If you said, really forgetful, let me show you the door, real estate, and investing in general, is probably not for you. Maybe you forget to buy insurance one time out of one hundred. Still, crazy if you are following your purchasing checklist. That is a 1% risk. The risk of fire to a residence in the United States in 2019 was about 0.37% according to the national Fire Protection Association. Having both a fire and being uninsured the same time for your forgetful self is then 0.0037%. You would need to purchase 27 thousand homes to have this event happen once!

“But housing values can go down, look at Detroit in 2008!”

OK, let’s do that. Here is the housing price index for the Detroit metropolitan area since 2004.

A nasty dip, to be sure, but largely recovered by now. If you had a house in 2008 you were really scared but if you managed to hold on to it, you would be back to slightly higher value after twelve years. Look at the graph again, when was the best time to buy a house?

2012? Wrong. What did I just tell you about when was the best time to buy real estate?

Thirty years ago! Cycles go up and down, but the general trend is increase. Make your deal today. Analyze it well, and if it works, now is the time, and thank me in 30 years.

Dr. Equity