Is now a good time to buy rental property?

The rental market in the Boston area is flat; asking prices are at all time highs; bidding wars are erupting on well-priced listings. Should I be even thinking about acquiring real estate NOW?

This is probably the most common question I get when teaching a class on buying investment real estate. And, as much as I like real estate, it gives even me pause.

However, the better question to be asking is: Is this a good time to buy rental property for you?

In other words, are you at a point in your life where you have the time and energy required to own and manage property? Do you have the financial security that you can make your downpayment and have a cushion for unexpected or expected major repairs or for an unplanned for vacancy? Do you have reasonable job and income security? Do you have the flexibility to deal with problems when they arise? If not, can you line up the resources to do this for you? If having sorted through questions like these and you feel ready, then now is the time.

No one ever really knows where markets or prices are headed. Anyone buying real estate always thinks they are paying way too much. Just ask your parents. Trying to time the market or even trying to avoid a peak is an exercise in frustration. Yes, prices are high and yes, they might be lower a year from now. But, they might be higher too. As long as you are buying with a fairly long time frame in mind (by that I mean five years or more) you are unlikely to lose your shirt. Remember 1990, when the real estate market dropped and many banks foreclosed on unsold new construction projects? Prices dropped 20% or more. Had you bought at the peak, you could have been looking at a big loss on paper. Fortunately with real estate, unlike with stocks, banks are not going to ask you to put money back into the deal to keep their loan proportionate to the new lower value. As long as you keep making your payments you can keep the loan. Now, here is the good news in all this. Anyone who stuck it out for as little as four years had recouped their paper losses. By 1995 they were ahead of the game.

Regardless of where the market goes from here, if you find a property you like, and the numbers make sense, and you plan to hold on to it for a while, even if your timing is not perfect, history would indicate that you will do OK. Think about it this way: if you could have bought in 1990 and held the property until today but did not, wouldn?t you be sorry?