We’ve all been there—regretting not jumping on a great investment opportunity because we talked ourselves out of it. There’s no way anyone could have guessed that a house bought in 2012 with a good debt coverage ratio of 2.5 and a fantastic price per square foot could double in value in under a decade. It could have looked decent at the time, but is nothing to get too excited over.
These days, you are unlikely to find a deal that good again. In our desire to maximize our investment, we can obsess over trying to time the market, but this is the wrong strategy. Instead, we should leverage the power of renegotiation.
You’re Not Stuck With the Hand You Were Dealt
There’s something very unique about real estate investing in the United States specifically. You can always refinance your property for cheap. This is unheard of in property investments anywhere else in the world. Unlike investing in stocks or cryptocurrency, you can always change the terms of your deal with rental properties. If the stock or crypto coin price suddenly tanks, that loss is immutable, and the money’s gone. This is why we can adapt instead of trying to predict the future of the US housing market (a futile endeavor). The best thing to do is to focus on if the investment is of good quality and sound.
It’s crucial to lock in an objectively good interest rate without trying to look into a crystal ball for a better deal down the road. The truth is you can always refinance. If rates increase, you can be satisfied that your original investment was a savvy one, but if they do go down, you don’t have to kick yourself over missing out because you can always refinance and get that better interest rate. It’s a win-win situation.
It’s not just the unpredictability of inflation and interest rates that makes timing the market a waste of energy. Something like a hurricane can decimate housing sales in that area for years. Look at the mega trends in the area, not individual data points when making the decision to buy a rental property.
Make Sure You Know What True Appreciation Is
When looking to invest, you obviously look at the appreciation stats first. This seems
simple right? You just subtract the sales price from the purchase price and reap the
benefits. It is not that simple if you have put a ton of work into the property. Sweat
equity does not equal appreciation.
In reality, the value of your original investment doesn’t increase organically if you or a firm put money and labor into improvements. The value goes up, but that skews appreciation statistics because at the end of the day, someone has to spend money and pay someone else to increase the home’s value. If it weren’t effective, you wouldn’t have so many flippers buying up houses and doing their version of repairs on them.
There’s a reason so many people get rich off of investment properties. They have the power to weather any storm that the economy has to throw at them. So if you see a deal that looks good, seize the moment!
