Myth? - Location, Location, Location

by : Paul Sunndin



We have all heard before - "The three most important things in real estate are location, location, location."

Now there is no doubt that location is important in real estate. But, over time, locations can and do change. What was once a great location may have significantly deteriorated. The investor must realize that many of the variables involved in making money in real estate can be changed or altered. You can upgrade your home, lower the asking price, give a buyer certain incentives, etc. But it is not easy to change or alter a location. Locations can and often do change over time. Needless to say, it is difficult to alter a location over the short term.

Well, sorry to cast doubt on the myth. I will tell you the most important thing in real estate (assuming you want to make money).

TIMING!

The real estate market has many cycles of boom and bust. While it is true that real estate has historically gone up 5% annually over the long term, there are often short periods of substantial price increases followed by shorter term and less volatile periods of price decreases. This is then often followed by extended periods of flat to small increases. The key is to know when to buy and sell within the cycle.

Obviously, you want to buy during the flat period just prior to the next substantial price increase. The timing can be difficult, but if you study long enough you can spot some of the signs.

Let me give you an example of timing. I bought a piece of land in 2004 for $45,000. The gentleman I bought it from paid $28,000 for it back in 1986. In 2006, the land was appraised at $105,000. Leverage aside, I made an annualized return of over 50%, while his annualized return was approximately 3%. I hate to tell you this, but it was the same location and we made substantially different returns on our money.

Was the reason I did so well because I studied and analyzed the market and knew that prices would substantially increase, or was it just luck?

The reality is that it was probably a combination of both. You need to do your own research, but it certainly helps to have a little luck on your side.

So remember, the old adage is really true - "timing is everything."