Bottom Fishing

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The Financial Dictionary defines a bottom fisher as “an investor seeking stocks that have fallen at or near their bottom, which he or she believes will trend up in the future.” I think that we as a society are fixated with the idea of finding the floor or bottom in real estate. It’s like an anti-depressant for some, one’s Prozac you might say. Once the local or national media says that we have hit bottom, you immediately feel good about making a decision.

What we are able to recognize, however, are great deals based on the basic fundamentals of location, condition, size, use, cost and planned length of ownership. One buildings maintenance fee is not the same as anothers, nor is the current taxable value. The location is what it is. Do you plan to buy it as a primary, second or investment property? Does the condo have an uninterupted view of the bay, is it facing west or east? What is your cost of borrowing and what is the amount you need to borrow? What does an identical or similar unit in the same building or immediate neighborhood currently rent for? What are the most recent sale comparables? So with some work one may relatively quickly determine if the price and cost of ownership makes sense for you. These are facts.

It is fair to say that real estate is cyclical, which includes several stages. And this is where I think that most people get it all mixed up. When there is significant demand, price appreciation and euphoria, everyone jumps in at the high point. This is actually the point of maximum risk. And then we are somewhere at the lowest point, the point of depression and desperation, then this is the point of maximum opportunity.

The way how I see it is that there is NO real bottom. This is all just a dream of finding the “perfect” deal. Real estate is local by nature and it is not possible to apply a “bottom” to all condominiums in Miami Beach, for example. While there are certain checks and balances one should apply when making a smart real estate investment decision, this obsession with entering the market at the absolute bottom should not be one of them.

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