Real Estate Bubble Adding Price and Risk to Location, Location, Location Mantra

Real estate investors familiar mantra location, location, location are nervously replacing the second and third locations with price and risk. As home prices rise to new levels daily and worries that some markets homebuyers are jumping into might start to loose air, their appetite for risk is creating some sleepless nights. Tired buyers no longer consider the best location, they might not even be able to afford it, and if a second tier location offers slightly less appreciation at a lower price they’ll grab it. This new willingness to compromise location and still take risks near the top of the market clearly looks like buyers are willing to reinvent a mantra entrenched in real estate lore.

After all, with all the hype about real estate weekend millionaires, want to-be apprentices, and flipping fever who wouldn’t want to jump on the real estate bandwagon? Almost everyone is talking, producing and marketing real estate mega-profits today. What they aren’t talking, producing or marketing is the potential risk and economic ruin that could lie ahead for those that jumped before looking, under-researched, charged down payments or took out interest-only loans.

Homebuyers looking to purchase in over-heated markets should consider how much current prices have risen over the last year, two-years and five years. Contrast those rates with the potential pool of buyers to pay future prices along the same rates in the same markets. Will the local economy and personal income increases support spiraling home prices? Here’s the bottom-line, are you willing to pay your projected appreciated sale price when you go to sell?

Today’s top bubble markets are not for the faint of heart from a risk perspective. If you are new to real estate investing, be forewarned you must have a high tolerance for risk and leverage. Many newbie real estate investors rush out and buy properties with no-money-down before figuring out if they will have cash flow to support expenses. Pace yourself when buying rental properties, not everyone is cut out to be a landlord. Retain some financial liquidity for unforeseen problems.

The best defense in today’s real estate market is to have a financial planner or account review your investment strategy before you jump into the new real estate paradigm. Your mantra should be location, price and risk.