“Location, Location, Location” is a saying heard very often in real estate investing (for good reason, of course). But what about “Timing is everything”?
Successful real estate investors know that part of buying investment property is staking out the best time of year to buy a house. The real estate market follows patterns over the course of a year that any real estate investor can follow in order to find the best real estate investment deal on the most profitable investment properties.
So, why exactly does timing matter in the real estate market and just when is the best time of year to buy a house for real estate investing?
Why Timing Matters When Buying Investment Property
How does knowing the best time of year to buy a house aid in getting the best real estate investment deal on investment properties? Imagine this:
Real Estate Investor #1
A real estate investor finds the ideal investment property in a promising location in the real estate market. The homework has been done (comparative market analysis and investment property analysis), and it’s time to put up an offer. Ten other real estate investors/owner-occupiers have shown interest, and all of a sudden our unlucky real estate investor is stuck in something like a bidding war for this dream investment property. Either the real estate investor loses out or, even worse, he overpays for this investment property with a large cash investment.
Related: The Best Time for Buying Real Estate Investment Properties
Real Estate Investor #2
Maybe there is no bidding war over the real estate investment. Instead, the real estate investor buying investment property pays a reasonable cash investment and wishes to sell as soon as possible for a good return on investment. For some reason, no real estate investors or owner-occupiers are to be found, and this real estate investment strategy must be thrown out of the window!
Real Estate Investor #3
Then there’s our third real estate investor. She buys an investment property in the real estate market, only to find a similar investment property down the street sells for thousands less a few months down the line!
These three instances happen often in the real estate market, simply because of timing. Want to avoid all of this when buying investment property? Keep reading to learn when the best time of year to buy a house for real estate investing is!
The Best Time of Year to Buy a House
The best time of year to buy a house is determined by a few different factors: the median price of investment properties, whether the real estate market is a seller’s market or a buyer’s market, and supply and demand. All of these elements are interconnected of course and affect one another in the real estate market.
October to March: The Best Time of Year to Buy a House
The winter months in the real estate market tend to be the best time of year to buy a house when you’re looking for income generating assets. Let’s take a look at why:
Seller’s Market or Buyer’s Market?
The winter months are a prime time for buying investment property in the real estate market. There are fewer owner-occupiers buying investment property as families are busy with the holidays and children are still in school. This demographic doesn’t plan to make major moves or changes, placing them out of the real estate market.
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This means less competition when buying an investment property in the real estate market during this time. Less competition means less demand, one of the traits of a buyer’s market.
Real estate investor #1 in our scenario wouldn’t have had the same issues with buying investment property if he knew the best time of year to buy a house was during the months of October to March!
Tip: While you have a choice of buying investment property anytime in the buyer’s market of the winter months, consider Christmas Time! It can be the best time of year to buy a house. Competition is even lower, and real estate investors are more generous with prices around the holidays.
Price of Investment Properties
The price of investment properties is a major factor when real estate investors look for income generating assets in the real estate market. The lower the price of the income generating assets, the lower the cash investment. Prices tend to be lower in a buyer’s market rather than a seller’s market.
Sources like Zillow, the Federal Reserve, and the Census Bureau provide data on the price of investment properties, the percentage of investment properties sold above this price, and the median days on market depending on the month of the year. This data (taken from 2010-2017) shows two prevalent results about the national real estate market:
January= The Best Time of Year to Buy a House
- Median Sales Price: $254,914
- % of Investment Properties Sold Above Median Price: 23%
- Median Days on Market: 104
This data supports the fact that October through March is the best time of year to buy a house, further pinpointing the exact month when real estate investors should be buying investment property: January.
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In January, the median sale price for investment properties is the lowest in the year. While some investment properties sell for above the median sales price, the percentage isn’t high compared to other months.
The days on the market is relatively long: Good for buying investment property, bad for selling investment property. Real estate investors buying income generating assets will have more negotiating power as sellers are likely to become more desperate the longer an investment property stays on the real estate market. January has the characteristics of a buyer’s market.
June= The Worst Time of Year to Buy a House
- Median Sales Price: $307,571
- % of Investment Properties Sold Above Median Price: 24%
- Median Days on Market: 67
Not only does June fall outside of the time range for the best time of year to buy a house, but it ranks as the worst time of year to buy a house. The median sale price of investment properties is around $50,000 higher than in January. The days on the real estate market is almost a month lower, giving a real estate investor less negotiating power over the price of income generating assets (as the 24% also implies). June has the characteristics of a seller’s market.
Tip: Even though the spring and summer months are more of a seller’s market, there is one day that is the best time of year to buy a house during this period: Easter Sunday (and the surrounding days).
It would seem real estate investor #3 purchased the investment property in June while the neighboring real estate investor knew to wait until January!
Supply and Demand in the Real Estate Market
Supply and demand define whether a real estate market will be a seller’s market or buyer’s market. When it comes to determining the best time of year to buy a house, the supply and demand aren’t black and white.
Why? Because real estate investors looking to sell their income generating assets look for the best time of year to sell a house! This means that while demand may be lower during the winter months, which favors buying investment property, supply won’t necessarily be high. Sellers of investment properties may hold on until the months of summer when demand in the real estate market is higher, and you may have trouble finding investment properties to fit your needs.
Because demand is generally low, real estate investor #2 chose the wrong real estate investment strategy for buying during the winter months. While you may get a good real estate investment deal on income generating assets, you might be better off turning it into a rental property rather than flipping it in this buyer’s market.
Related: Buying a Rental Property: What’s The Best Time?
Keep in Mind…
- A real estate investor should thoroughly study an investment property with comparative market analysis and investment property analysis before buying; time can’t be the only deciding factor for real estate investing.
- Every real estate market is different, and while these general trends are likely to apply, some cities just don’t follow the rules! San Francisco, San Jose, New York City, Los Angeles, Seattle, Portland, and Chicago are a seller’s market all year round.
Because the 2018 US real estate market has been labeled as a seller’s market, it’s important now more than ever to know when the best time of year to buy a house for real estate investing is. Follow real estate market trends of the housing market you’re interested in. Does it follow the same trends as the national real estate market? If so, then take advantage of the best time of year to buy a house. Start looking for investment properties now by signing up for Mashvisor today. And hurry up – the Easter Holiday is a particularly good time of the year to buy an investment property!
Related: Where to Look for The Best Real Estate Investments for 2018
