Is Now The Time To Buy Real Estate? (Or To Make Other Investments?)

We recently received a reader question asking if now is the time to buy real estate in Costa Rica:

Do you think that based on everything that is happening right now, it may be a good time to buy? Are there more properties on the market now in light of the pandemic? I know that this is a broad and likely unanswerable question, just wondering your thoughts on the timing.

– John

Yes, the question is broad, and it’s unanswerable because an important investment decision, like real estate (or stocks or any other type of investment), needs to be customized to your individual situation. We are not financial advisors or lawyers so we can’t give advice. But I can write about how I’m thinking about purchase decisions right now, and then you can take it as one (of hopefully many) data points in your own calculation.

I have already written about how the pandemic and its impact on the economy is changing our FIRE plans. Except for our consulting income, which we are still actively growing, we’re taking a wait-and-see approach with our other investments. We have re-balanced our paper portfolio but have not purchased additional securities. We have put plans to scout real estate on hold – a planned trip to Portugal and Spain to look at real estate in late April is postponed indefinitely.

Will we invest in the stock market or buy more real estate in the next 12 months? Here are five questions we’re asking ourselves as we consider making our next investment move:

• Do we need to make any purchases?
• Do we want to make any purchases?
• Are we able to to purchase what we want?
• Is it better to wait?
• Is it better to focus on something else than investing?

Do we need to make any purchases?

We wanted to fund our retirement accounts for 2019 before the April 15 deadline, so we did put new money into the market. However, that wasn’t an active buy decision – it was more a need to meet the April 15 deadline. (By the way, with the extension of the tax deadline to July 15, the new deadline to fund your retirement account for 2019 is July 15)

We’ve bought and sold other paper investments since the pandemic hit, but it has just been for re-balancing purposes only. There are no other tax deadlines to meet, and our portfolio is properly diversified, so we don’t have to do anything more, unless we want to.

On the real estate end, we do not need to make a purchase at this time because we already have a diverse portfolio of property investments, both in our personal assets and in our retirement plan.

Do we want to make any purchases?

We have a friend, Kathy, who was just about to close on an international property before the pandemic hit, and travel restrictions prevented her from flying in for her final walk-through and closing. She still wants to make that purchase because she had spent much of the previous year researching the country, visiting multiple times and vetting 100+ properties. She also still thinks it’s a great deal, so considering the work she has put into it, she is pushing ahead with the closing, with everything happening remotely.

We’re not anywhere close to where Kathy is on the purchase journey, having just been doing preliminary research on several countries and narrowed down our list to Portugal or Spain. We had a scouting trip planned for late April, and we even started looking at purchase requirements, such as legal and financial processes. That said, we’re still far from identifying even a city, much less a neighborhood, much less a specific property.

Unlike Kathy, we don’t have a big desire to jump start the process because we’d rather wait till more is known about the pandemic, the economic fallout and travel protocols, and we need to have an opportunity to see the deals firsthand.

We want to make another international real estate purchase, but not badly enough that we will push ahead at this moment.

Are we able to purchase what we want?

Even if we had done the initial scouting trip, it’s unclear we could finish the process now. Our friend Kathy was far enough along in the process that she can still proceed with her closing, because she already has a team on the ground, and has already signed necessary power of attorney documents.

In Costa Rica, where we already have a real estate team in place and a corporation set up that could buy property, the borders are closed till at least April 30. There is no central listing service for real estate in Costa Rica (like the MLS in the US), so you really need to be on the ground, looking at various real estate agency offerings, looking at for-sale-by-owner offerings and hopefully hearing about off-market listings. Even if you want to purchase something in Costa Rica, your ability to find a deal remotely is limited.

Is it better to wait?

We’re taking a wait-and-see approach before making big moves because we still don’t know whether the pandemic will abate. We don’t know exactly how the economy will respond to the pandemic. We don’t know what travel will be like in the next few months.

Costa Rica is bracing for a 90% drop in travel. There is an immediate hit to workers in the industry – an estimated 200,000 workers or 10% of the total workforce. There will also be secondary effects as those workers spend less money and tourist-focused areas go empty. Sure, there could be good deals right now as people panic and try to offload properties. But there will probably also be good deals down the road as people who tried to hang onto their properties realize that they can’t and have to sell at that point.

If we shift our attention to the stock market, which had several days of sharp gains after dropping as much as 34% from all-time highs, the recent gains might be just a dead cat bounce (a small, brief recovery on the way to further decline). I’m not going to bother trying to decipher the direction of the market. We shifted to a tactical asset allocation strategy and will re-balance like clockwork at the end of each month.

Is it better to focus on something else than investing?

I agree that periods of crisis do offer unique opportunities. There could be good real estate deals out there. There could be stocks that got unnecessarily hammered and are available for cheap compared to their value.

However, I think there’s enough uncertainty in the economy and no need to rush that we don’t plan to buy anything right now. Our time and effort is better focused on building income through our consulting business, which is still ongoing and can be nurtured through the downturn.

Speaking of income, true financial independence requires enough income each month to match your spending needs. Our free course, Making FIRE Possible, devotes a module to how to focus on increasing your income.

What cash we do have is sitting in reserve in case the economy gets even worse, and we need to spend it, especially since it is unknown if our tenants will be able to pay their rent in the coming months. If we don’t spend our cash, it will be available once the economic picture becomes clearer, and we feel better-positioned and better-informed to buy.

In the meantime, I’m still making money moves, just not purchase decisions:

• we recently updated our estate plan and are still transferring assets into our trust.
• we plan to convert some of our traditional retirement assets to a Roth account.
• we recently changed our primary residence so still have some change-of-address and other logistics to handle.

These are important financial tasks but not purchase decisions.

There is no better time than the present to do your research

Regardless of whether now is the time to buy or not, it is definitely the time to plan and prepare. Investors can travel right now, but they can definitely network with people virtually, and do lots of research. A great place to start are the real estate resources I love.

While not cited in that post, International Living is a critical resource for learning more about popular international destinations people are investing in and moving to. Costa Rica gets lots of coverage from them.

Travel will likely be inexpensive for some time when the borders open again, so you can start to tentatively plan your calendar and destinations for scouting trips.

We would rather buy too late than too early

When we got serious about real estate investing in 2013, I set a target of 10 rental units, which was based on having enough units to produce enough cash flow for a comfortable lifestyle but not so many units that it became unwieldy to manage. Fast forward to today, and we do have 10 rental units.

At one point, however, we had up to 15. We saw some “good deals” that looked great on paper, but didn’t fit our overall goal (of enough but not too much). Still, we plowed forward, excited by the numbers and ended up selling those extra properties within 3 years of buying them. We didn’t lose money, but we lost time and energy, which is irreplaceable and arguably more valuable.

We’re not doing that this time. We have our portfolio as we like it. We are prioritizing other things. Just because prices dip, whether for real estate or stocks, doesn’t mean it’s the right time to buy.