The Real Estate Time Machine

By your real estate dude

Time has always fascinated me. One of my favorite movies when I was a kid was H.G. Wells “Time Machine”. If you’re old enough to remember it, you probably liked it too. It was full of adventure and, besides, there was just something cool about the idea of controlling time. Ah, the freedom I would have if I only had the chance to move through time and control the events that so often seem to have control over me. I think it’s a safe bet that most people feel that way. If we didn’t, there wouldn’t be so many movies about controlling time.

As you grow older, the reasons for wanting to control time change. When I was a kid, I wanted to slow time down so I could have more of it in which to get my homework done or speed it up so the school day would go by quicker. As an adult, I have dreamed of more time with my wife and kids and that sort of thing. But mostly, my desire to take a crack at the old time machine has applied to my business life where investments are concerned, which brings me to the subject of time where it applies to real estate.

In real estate, as in most other kinds of investing, time takes on new meaning and can be broken down into two basic parts: time and timing. Timing is easy to imagine. It’s simply a matter of being in the right place at the right time and taking the correct action in order to bring about the desired result. Like I said, it’s easy to imagine. Unfortunately, it’s a lot easier to imagine than it is to do, which explains why I’ve always wanted a time machine! Time, on the other hand, can be defined as how long you hold a property or other investment between the date on which you purchase it and the date on which you sell it, at least for the purpose of this discussion. So then, as my wife would say, timing is the “when” and time is the “how long”.

I had a client recently who bought a house when homes were selling faster than you could put the “For Sale” signs up. She, like many others, figured that prices would just keep climbing. A year or so later she wanted to sell, but by then, the market had softened and she couldn’t sell it for what she owed on it. You might say that she had been hoodwinked by “time & timing” simply because she didn’t quite understand how they worked.

Another client also purchased a home at a time when prices were high. He and his wife had just come to town and needed a place to live, so they bought a home even though prices were high and the timing was not the greatest. I just sold their home a couple of months ago. The current market had softened, but they still walked away with a serious profit on the sale of that house. Both these folks bought a house when prices were high. In both cases, the “timing” of the purchase was poor. The only difference was “time”. While one owner had lived in the home for a little over a year, the other had lived there well over a decade. “Well obviously,” you say. But there is a lesson in this. The hard fact is that “timing” leaves little room for error, but “time” is much more forgiving. Let’s explore why this is the case with real estate.

Taking a look at the pricing trends of real estate in San Diego County over the past 100 years, we find that prices have consistently increased over time. Certainly, the market has taken some dips along the way, even some serious ones. However, on balance, it can be said that if you had purchased property anywhere along that one hundred year track and held it long enough, its value would have increased significantly. Depending upon when you purchased the property, you might have had to hold it only a year or two to get the appreciation you desired. On the other hand, you might have purchased it at a time in that hundred year span which required you to hold the property for a period of five, seven or even ten years to see the appreciation. But, either way, if you held it long enough the value when up!

The moral of the story is this: when you’re investing your hard earned money in a home or rental property, it’s important to understand that in general, real estate investments perform best over the long term. So, take this tip from a fellow time traveler and remember the old adage: “He who has the time wins”. Set yourself up for the long haul just in case something unforeseen comes your way. That way, even if you plan to sell the property in the short term to make a quick buck, you’ll be prepared to hold it for the long term if the market changes and you won’t get stuck.