I have a friend that is a contractor and recently built a house in a coastal town near me, he built it to sell and now that the market has taken a bit of a hit he has asked me if I would be interested in buying it for practically what it cost to build. It is a beautiful house but the area is not the best in the town but is getting slowly cleaned up and there is an ocean view from the deck off the den. I am thinking this would be a great investment but was wondering if anyone could lend some advice. This would be the first investment purchase of this size for me and I am a little nervous, is this a no-brainer or am I right to be hesitant?

Real Estate is in a downward pattern right now. In the short term, someone is going to lose money on this property, you or him?

Think of it this way - would you have bought the house under any other normal circumstances?

If not, it's probably not for you.

One of the big adages of property is that it's easier to sell a bad property in a good area than a good property in a bad area.

And as Dru points out, we haven't even seen the bottom of the property market yet.

IMO, wait till it does bottom out, then ask yourself what house you would like to buy, in what area, and how much you can afford.

I think that's a far more important set of questions to ask when buying your first property, than "can I help a friend out by loading myself with the biggest debt I'll ever carry".

That's just my 2c though.

Hi Brian,

i think the biggest headache is to find out when is the bottom.

I believe the best time to buy is right before the market hits bottom. This way, the ball remains in the buyers court because if you try to buy when the market starts booming, the ball then goes over to the seller's court. The same goes for selling a house, which I believe is a little more difficult.

When trying to determine when the market might turn around, keep in touch with major amendments to the mortgage lending industry and pay close attention to the federal reserve. It is these items that have the most influence in borrowing power.

according to me its a good deal for you if you buy that house , because first advantage for you. your friend is a contractor .i think he give you the best house in cheaper rates, and you said there is an ocean view near the deck of the den.i think its a beautiful view. you don't worry about the area . its a good deal for you. i think you should go for it.

The real estate market is still very inflated and I wouldn't buy a property right now, but if the price of the house is way below the current market prices for comparable properties in the area (30-40% below) then it might be worth having a look at the property.

For an investment, the rule of thumb is 70% of FMV after repairs.

Real estate is not a "good" investment in the sense that you are going to get a large profit for your investment - particularly if you are getting a loan for the property. By the time you pay interest on that loan you are usually lucky to get any return at all.

Now, if you have the CASH to buy the property then you might be in a whole new ballgame. Still - put that same cash in a high yield mutual fund and it is likely to way out produce any real estate on the market.

That's debateable, it's very possible to make good money in real estate by leveraging, but it has it's risks. It all comes down to cash flow, the idea is to have more coming in than going out, then let appreciation work for you.

Paying cash, lessens the risk, but ties up a lot of money. It all depends on the property you buy and how you manage it.