Access Wealth Strategies

When is the right time to buy an asset for investment purposes? This could the most important question an investor asks himself or herself.

There is not one right answer for everyone that applies at all times. Instead it takes judgment and applying core principles to answer this question.

The most successful passive investor of all time, Warren Buffett, provides a few guiding principles in answering the question, “When is the right time to buy an asset?”

Let’s take a look at a few of Buffett’s famous quotes.

“A public opinion poll is no substitute for thought.”

My transation: Just becuase something is popular doesn’t mean it is the best buy in the marketplace.

“The investor of today does not profit from yesterday’s growth.”

My Translation: If you buy an asset today you DON’T get the past profits, only the future profit from the investment.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

My Translation: The best time to buy (or sell) is when everyone else is doing the opposite.

So, we see that from Warren Buffett’s perspective, the time to buy an asset might be when people think he’s crazy to do it.

Think back to fall 2008 when Warren Buffett made a multi-billion investment in both General Electric and Goldman Sachs. At the time the financial world almost failed, yet just over a year later he has a multi-billion dollar profit plus 10% preferred dividends while he waits. Not too shabby.

What do you think? Have you seen Buffett’s principles at work in your investing life? Or do you have a different way of timing your asset acquisition and how much success have you had? Please comment below and let us know.

Remember during the Great Real Estate Bubble of 2003-2006 when everyone owned multiple investment properties in bubble markets such as Las Vegas, Phoenix, Miami, etc.?  These people called themselves “real estate investors”.

After the real estate bubble burst, we’re not so sure they were investors after all, but more like speculators (or gamblers) hoping prices would rise indefinitely regardless of the underlying market fundamentals.

Now, we’re starting to see investors back – purchasing low priced homes in many (previously bubble) markets across the country. Does the return of real estate investors signal the beginning of another bubble?

Not necessarily.

We have to look more closely at the assets being bought (and the manner in which they’re bought) in order to determine if we have unhealthy bubble-like activity or healthy market clearing activity.

Currently investors are actively purchasing distressed entry-level (lower priced) homes from bank REOs, wholesalers, and trustee sales. Many of these methods require an all cash purchase.

Let’s consider an example. Back in 2005 an investor would put down a small $5000 deposit on a pre-development home in an outlying area of a bubble market for a purchase price of say $400,000. That same home now is probably priced at $150,000 for an all-cash investor.

At the cost basis of $150,000 in the property, today’s investor has the option to rent out the property for a reasonable rate of return (compared to a bank CD at 2%) or fix up and flip the property to a buyer that qualifies for FHA or VA financing.  A retail buyer today is often subsidized by government tax credits and seller paid closing costs.

Thus the difference this time with investor real estate purchases is the basis in the property compared to the true economic value of the property.

During the bubble, properties were purchased that had no chance at being cash flow positive when rented out. Now though, residential properties can be purchased that are cash flow positive.

Not only can today’s investors enjoy positive cash flow on properties they hold, they can often sell the properties through the retail channel (MLS) to first time home buyers and generate $15,000 to $100,000 in profit (capital gain).

In conclusion, the mere fact that investors are now purchasing a large quantity of properties does not indicate a bubble. Today’s real estate investor has a much sounder basis in their property because they can rent it for real cash flow or sell it for profit to a real buyer (not another speculator) – unlike during the bubble.