Is Now the Right Time to Invest in Real Estate?
Investing in real estate is often one of the best uses for your capital. In more ways than one, this form of investment can bring profitability and diversity to your portfolio. But if the coronavirus is still lingering over the country, should you invest in real estate?
Real estate news is filled with headlines proclaiming low interest rates, housing market shifts, and changes in the transaction process. Some of these headlines indicate that yes, if you are prepared, it could be the perfect time to invest in real estate.
Why it Might Be a Good Time for You to Invest
Let us start by saying that there is never a perfect time for everyone to invest in real estate. In general, personal factors, such as income stability, proximity to the property, and total cash savings are more important to investors than external factors. (We’ll cover the personal factors briefly.)
However, the external factors still matter, and they could be the difference for your choice to invest. It’s certainly reasonable to say that if you are personally prepared to invest, there may never be a better time than now…
Low Interest Rates
In many cases, the same factors that make it a good time to buy a personal residence also make it a good time to invest in a property. Interest rates are the perfect example. Interest rates are at a historically-low level, making mortgage more affordable for numerous buyers, including investors and homebuyers alike.
Rates on mortgages for investment properties are generally higher than owner-occupied housing; this is because lenders are exposed to more risk and higher interest rates can be used to balance this risk. However, investors in the real estate sector will still enjoy rates that are significantly lower than a year or a decade before. If the economy improves, which it seems to be doing so far, interest rates will steadily climb upward, so there may only be a short window to take advantage of these rates.
Fewer Buyers and Motivated Sellers Mean Better Deals
For an investor, it’s all about purchase price. Whether you plan on “flipping” the home or placing it on the rental market, getting the lowest-possible price is essential to longterm financial success.
Currently, the market is set up (at least on paper) to create better deals for people who want to invest in real estate. There are fewer buyers searching for housing, and most sellers are highly motivated to take early offers instead of waiting for a big payment. For investors, this means you can bid aggressively (but fairly, of course) and get a good deal on a property that can attract tenants and provide a sustained income.
Providing Investment Stability Not Guaranteed by Stock Market
Historically, a drop in the market is always followed by a rise. It’s not a question of if the market will recover, but when. This when, however, can keep stock investors up all night! With the sudden collapse of the stock market after the economic shutdown, diversification has become more attractive than ever.
Longterm rental properties may provide the stability and investment diversity you need for a successful portfolio. At a time when many people feel little control over their future (someone can’t, at least not directly, control if they get laid off or lose money in the stock market), owning rental properties allows you to improve, lease, sell, or even borrow against the property as you see fit. This can give you the sense of control many feel is currently absent from their lives.
The stock market is down, and while it will certainly return to higher levels, many people see having at least some investments in the real estate sector as a stabilizing factor.
Good for Aspiring Landlords, Perhaps Not for Flippers, Short-Hold Sellers
When we say the time may be right to invest in real estate, we should clarify that certain forms of investing may not be wise at this time. If you are purchasing a property to hold for decades and use an a rental, then all external signs show positives. However, if you are purchasing for a short-term hold and quick sale, then you may find more problems creating a profit.
People involved in “fix-and-flip,” the process of purchasing a low-cost house, renovating and improving the property, and selling for profit, may have trouble earning a substantial income. This practice depends on the renovations increasing the value of the home, but it also depends, just a bit, on market appreciation. After a year or so, investors hope that simple property appreciation will help bump the property’s value. Home prices have appeared to steady, so holding for a few months to a year to improve the value may not happen. Basically, if you plan on owning the property for a significant amount of time, you can likely realize a profit, as you are giving the market time to recover. A fast turn around? Not so much.
Is the Time Right For You to Invest in Real Estate?
All the external factors could line up perfectly for investing in real estate, but if you’re not prepared, both financially and mentally, for owning investment property, the time is not right for you.
You need to be able to afford the property in question (obviously!), and you should have a thick financial cushion that can help you through any unexpected costs that come with your new investment.
The property you are considering should also line up with your goals. It should be in an area that is ideal for investors, and it should have a significant chance of growing in value over the next decade or two.
Quality Loans Increase Your Chances of Success
If you want to purchase an investment property with an affordable loan, contact our staff today. We’ll help you choose the right mortgage loan for your financial goal so you can experience longterm success as an investor.
While the right loan is far from the only factor for success in property investments, it can make a big difference on the longterm financial stability of your purchase. Let us do our part, however small, to increasing your chances of success!