Should You Purchase Investment Properties Before the End of the Year?
| Photographs By KatarzynaBialasiewicz
As a real estate investor myself, I have developed my own personal style when it comes to purchasing investment properties. Each investor has his or her own way of doing things. As long as your style works for you, then stick with it. But, there is one thing that is fairly universal when it comes to real estate: when buying more investment properties makes the most financial sense.
Winter investment properties
As any Realtor knows, there are good times to sell a house and not-so-great times. Winter happens to fall into the “not-so-great times” category. People aren’t really in the market to purchase a new property as often in the winter for myriad reasons. The most common reasons are:
- The holidays
- The weather
- Moving kids to different schools in the middle of a school year
Since fewer people are willing to move during the latter part of the year, it makes selling a house that much more difficult. But that makes it a GREAT time for any real estate investors looking to add more investment properties to their portfolios.
When I started looking for our first investment properties, I kept this in mind. The last few months of the year were most attractive to me for the following reasons:
- More investment properties to choose from
- Lower prices
- Less haggling
- More time for rehab
- Tax benefits
A few people thought that I was crazy, but once I explained my logic to them, it made more sense. This drove those investors to begin looking for investment properties in the winter also.
More investment properties
During the peak seasons of selling, being a real estate investor can be more difficult. Investors are coming in at a lower price than primary home buyers, so we are at a disadvantage. But during off-peak times, such as the last few months of the year, the tables turn a bit for investors.
Looking for historical data in your preferred purchasing areas ahead of time is always a good plan of action. Checking just this one bit of information before you plan to purchase anything can give you a better idea as to:
- How many homes are listed each month throughout the year, so you can see the pattern
- The median sales price of specific property types by month
- Rental values by month for whatever metrics you prefer
- A whole host of other metrics, depending upon what you are looking for
Doing due diligence ahead of time is always wise when considering purchasing an investment property. After all, there is a season for everything!
Since the last few months of the year are not as ideal to put a house on the market, that typically means lower asking prices right out of the gate.
Everything is about supply and demand. If a seller puts a house on the market in the spring, statistically it sells for a higher price than if he or she put the same house on the market in the fall or winter.
Not only that, but the longer a house sits on the market, the lower the selling price usually is. This means that not only looking at the season, but how long a house has been on the market, can be extremely advantageous to us real estate investors.
The majority of the properties put on the market in the latter part of the year are put there out of necessity. Unfortunately, for these sellers, this means that they will likely get a lower price than they are asking.
Investors know this fact and are more willing to wait a seller out and negotiate better terms for themselves. This is a disadvantage to the seller but an advantage to the investor.
I know when I am looking for investment properties, there are a number of things I am searching for in order for the property to fit my criteria. But one of the major factors for me is that I want to be able to help a seller out of a situation that the person no longer wants to be in. Usually, I am looking for sellers who inherited the property from an elderly family member and just want to offload it to help pay for their care or housing.
In these instances, I know the property is already priced pretty darn reasonably, but I still have room to negotiate.
More rehab time
Since the rental market is not very hot in the winter, it usually takes longer to get a property rented during that time. Therefore, if you do get a new investment property during the later months of the year, it will likely sit on the market longer.
This can be a catch-22, in that the property won’t be generating any income for a couple of months, usually. But it could give you time to do some rehab work on it. And if you are a really savvy investor, you can do a lot of renovations with a small amount of capital to maximize this time.
A lot of the properties I have run across in the fall/winter are in need of at least some cosmetic assistance. There are also PLENTY of properties that need a lot more than that! If you are going to have a property sitting for a couple of months, then this is a perfect time to put in some work to potentially get a higher rental rate when the market heats up.
The other great benefit is related to taxes. The tax laws regarding investment properties change all the time and can vary by state, so it is good to keep up with them.
Ultimately, if you purchase an investment property toward the end of the year, you may get a better tax writeoff because you won’t have generated any income on the property yet.
When I have bought mine toward the end of the year, I was able to write off:
- The amortized purchase price of the investment property
- The closing costs
- The property taxes
- The property insurance
- Utility deposits
Searching for new investment properties can really be a win-win situation if you know where to look, are willing to negotiate, can put in a little elbow grease, and can be patient. Overall, it is my favorite time of the year to start looking for new properties.
The views expressed in content distributed by Newstex and its re-distributors (collectively, “Newstex Authoritative Content”) are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an “AS IS” basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.
Licensed content is provided for informational purposes only, and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates.