experts: real estate column Wednesday, May 28, 2008

Timing Wins Over Location

It used to be easy - if you could learn to recite, 'Location, Location, Location' from memory you were automatically a real estate expert. But now it's all about timing...

By Ozzie Jurock

In my 1999 book Forget About Location, Location, Location, I argued that we are too enamoured with that time-worn phrase. Imagine, I said, that you bought a single family house in Burnaby - anywhere - for approximately $260,000 in 1990. Imagine also, that you let it go to pot ... roof leaking, front door paint peeling, grass knee high ... you still could have sold it to me for $480,000 in 1995. I go and fix the roof, paint the door, create a lawn you can dine from and in 1999 I would only have received $380,000 for it ... from - you guessed it - shrewd you. You bought it, kept it till last year (yup, ran it down again - but no matter) you got a whopping $780,000 for it.

What did any of that have to do with location? Had you bought in San Francisco in 1989 you would have lost 30 per cent of the value by 1992 ... ditto for New York as the Reichman's demonstrated through buying low (everyone was depressed) and selling high (everyone turned euphoric) ... to the tune of raking in a $600 million profit.

There used to be rules. It used to be easy. If you could learn to recite, "Location, Location, Location" from memory you were automatically a real estate expert.

You simply had to find out where the most desirable part of town was, or where the most desirable suburban or rural area was, depending on your interest, push a pin into the map at that spot and then go and buy something as close as possible to where the pin was.

Timing wasn't important because the dynamics never changed. But in the last 20 years location means less and timing became extremely important.

When you look at any market you are looking at a snapshot in time. That's the way it is at that moment. In a month or a year, it might be very different. In real estate investing, the degree to which your timing is accurate is the degree to which you will achieve optimal or minimal results. It is very often the difference between success and failure.

If you are in an inflationary real estate cycle, the rules are relatively simple. You buy a piece of property utilizing leverage, you wait a certain amount of time for the property to appreciate, then you might sell for a profit and buy something larger or you can borrow on your increased equity and buy something in addition. What could be easier? However, if you're in a flat-line segment of an inflation cycle you have to buy below fair market value to establish your profit at the beginning. You have to give greater importance to cash flow considerations. And if you are in an 'unreported inflationary cycle' - as now, you even have a bigger problem.

But what happens if you buy in an inflationary cycle and then it turns flat-line? You have to shift your focus every time the market changes. Because, like riding a rodeo bull, every time the bull does something different you have to change your position accordingly or you're going to be thrown very forcibly to the ground, stomped on, and gored unmercifully.

So we agree that there are no rules because the marketplace is continually changing, therefore what we have to do is learn to read the changes, interpret what the changes mean, and adapt to them.

What are the determining factors? Here we come to some good news. The component parts, the determining factors, are not complex or difficult to deal with. You look at migration, affordability, inventory availability, inflation, and environment of growth.

You can gather your facts from wherever they are available but after you've done that you have to form an opinion. This isn't like religion where you decide on a moral philosophy and then go out and carve it in stone. This is an ever-changing continuum, a soup that is boiling and bubbling and nothing is ever where it was the last time you looked. The difference between 'too soon' and 'too late' is timing! If you watch the trends as they change you'll be able to time your actions for optimum results.

So, you must watch for changes. Are listings increasing and dramatically? Are sales slowing? Is a forestry town closing its mill? Is a new superport being built? Will bad news affect real estate values here? How many cranes are rising into the sky and is it normal?

Well, I didn't say it was easy. But the last one is a fine predictor. At the end of the cycle we always overbuild. Always. The last builder and the last developer pay too much for the land, or he takes too long to come to market...and then sales stop. We built like mad in Vancouver and Vancouver Island towns from 1990 - 1995 only to see the market crumble - in all the fine locations, like False Creek...where some values crunched down by 35 per cent. By 1999, no buildings came on stream, buyers were finally absorbed...and then we went on a building binge again. Am I surprised that we have gone too far, overbuilt again and need an adjustment period? No. Do I care about the gloomers who see abject collapses again? No. For the homeowner staying in their residence for 10 years it matters not, for the investor however ... the difference of timing ... where we are on this particular or any other cycle ... is vital.

So, what does that mean for today's real estate markets? Can the experts really help us? Remember even the experts are guessing. Futurists are never right except by accident. Historians are never wrong. If you had tomorrow's paper you could make millions; if you have yesterday's paper you can wrap fish in it.

Except, contained in yesterday's newspaper are changes that have already started and if you get to them soon enough, interpret them correctly and then act on them, you can do yourself some serious good. It's not necessary for you to have the wisdom of the world at your fingertips. But get good quality information, know who you are - a shark, a flipper or an investor - pick your market segment, pick your professionals and then don't get emotional about it. You will always make the most money on the day you buy ... even today.

Published in The Vancouver Sun, Thursday, May 22, 2008

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Related Links:

Forget About Location, Location, Location

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