In uncertain times like this, many of us are confused especially when we hear contradicting opinions. Real estate agents and other professionals always say it's time to buy/sell. If it's time to buy, why would it be time to sell? How do they justify it? Ever thought about that?

Now I'm expressing some opinions on this issue that I learned recently: A property should be treated as a cash-generating asset (even if you're buying it for your own dwelling purpose, you should think of the it this way to justify the value you pay for). Having said that, a stream of rent income that you can expect has a corresponding value now. MBAs call it Net Present Value. If the selling price for a home is larger than this value, that means you're paying more for the income that you can expect when you purchase it. If the selling price is less than this value, that makes it a good buy. The same logic is equally applicable to home selling (smart investors like you can easily figure it out).

So the question comes down to: do you want to pay more for the income you can expect? The extra value that you pay for the Rent-Implied-Value largely represents a scary word: bubble. Now I bet this is something that agents never want to discuss frankly with any of us unless some incentives are in place. For home selling, the reverse is also true. If you sell for less than the Rent-Implied-Value, you are giving up your income for less!

Now we now the scenarios that we should buy or sell. But what if I tell you that I just found out a concrete way to figure out the "Best-Timing" to buy or sell? Something that I thought was impossible before I read that article.

Ownership of a property increases your wealth in 2 ways: property value growth and rent income. A property value fluctuates a lot, but rent is relatively stable. Making a buy decision too soon exposes yourself to potential decrease in home value but you're earning the rent income. Waiting for too long makes you forgo the rent income that you would've earned but you are insulated from potential decrease in home value. If we can accept this, the hundred-thousand-dollar-question is reduced to: is the fluctuation outweighted by the stability? Through a thoughtful process that won Nobel prize, the article showed that they can figure out a "barrier price". For property buying, below or equal to this barrier price means fluctuation is outweighted. For property selling, above or equal to this barrier means time to sell. And that pretty much solves the problem of: WHEN IS THE TIME TO BUY/SELL?

Now I thought that's a more concrete way to think about timing. Don't know about you, but thinking a little further can potentially save me hundreds of thousands dollars from wrong decisions. I would give it a try.

Note that this way of thinking is by no means trying to predict the property value, but to reversely think about the best timing that benefits would be greater than costs and risks combined. I think this is what we all ignored and caused the big bubble recently. Note also that the accuracy of the timing you figure out depends on the quality of the information you provide to yourself (such as rent, proprety value etc.). Zillow.com and Trulia.com provides good estimates of property value, Rentometer.com provides good rent info. And HouseMiners.com actually does the analysis that I mentioned above in real time so that you don't have to kill your brain.

Hope we all prosper.