Yet another year counting down, the pandemic is still making all sorts of headlines. Investors reeling from the effects of COVID-19 isn’t news anymore, it has become part of life. People manage their living situation from owning a house to searching for “renovated 1 bedroom apartments near me” to rent as a way to keep down monthly costs. However, despite the negative side of it, opportunities have presented themselves in various industries. And among on the list lies real estate.
The real estate market has shown what hasn’t been seen since 2006. According to the National Association of Realtors (NAR), 2020 recorded a growth of home sales by a huge margin compared to previous years, a rise by 6.76 million units representing a 22% up over 2019 numbers. This statistics speaks for itself how the market stands at the moment.
What’s important in any type of investment is readiness and the right level of preparedness. Do your due diligence and research the real estate market if you’re a first-time homebuyer and, or venturing long term is your sole goal. Checking house prices, prospective location and so many more.
Is Now a Good Time to Invest in Real Estate?
What many constantly keep asking is now a good time to invest in real estate? There’s a bunch of reasons to answer that question but to keep it short, Yes it's a good time to invest in real estate. The whys, we’ll get to that in a moment.
When it comes to investment this is what Warren Buffet says, “When others are greedy, be fearful and when others are fearful, be greedy.” That alone sums up a strategy that anyone can deploy and stay competitive in a market full of uncertainties.
See also: Should I Pay Off My Mortgage or Invest?
Should You Be Concerned About Buying Real Estate?
“There is never a wrong time to buy a house, or an apartment or land,” says Jessica Levine, a real estate broker at Douglas Elliman in the New York City area.
In the Long term, real estate historical trend shows home prices always end up going up and the value increasingly asserts that investing strategically yields. Long term, there’s value for your money, since the prices will climb and the overall value will too.
With the rental property mortgage interest rates being at a historically low, buying real estate now and locking it up in a 30-year mortgage might just sound like hitting the jackpot. Call it boss moves or whatever you like, but investing now might just be the smartest move.
However, that doesn’t mean the absence of things to be worried about in real estate. For instance, you have to be selective of the location of investment. Assess the unemployment rate at the place and establish if tenants will be reliable to pay rent, to support the mortgage, insurance, and taxes dues as required.
According to the Labor Department, the US lost 140,000 jobs in December 2020. However, in March 2021 the unemployment rate was edged down to 6%, the U.S Bureau of Labor Statistics reported.
Why this Could be the Right Time to Invest in Real Estate
Now back to the most begging question, are you perplexed by the fact that real estate mortgage interest rates are historically low? And should you take advantage of the situation? Well, here are a couple of reasons you should consider investing in real estate now.
- Low Mortgage rates Vs House prices
- Real Estate Offers Stability that Stocks Cannot
- It’s a Seller’s Market
Low Mortgage Rates vs. House Prices
The mortgage rates are at a historical low, and this could be perfect for homebuyers looking for a roof over their heads. What do low mortgage rates mean for you? How does it affect the investment in real estate?
Low interest means real estate houses are more affordable to acquire. Some lenders are even offering up to 30-year mortgages at 3%. It makes more sense to buy now than renting, you should take advantage of the low-interest rates. However, that depends on your financial situation and arrangement.
On the other hand, the low interest may push the investors to increase their home prices because generally, mortgage interest rates and house prices have an inverse relationship. It’s the simple economics at play here, low interest driving up the demand for houses, and consequently, the prices increase as well to restore the equilibrium.
Real Estate Offers Stability that Stocks Cannot
It’s no secret stocks can be volatile as far as trading is concerned. The COVID-19 has taken a toll on the stock market, and while others are reeling on its effects, on the other hand, real estate might just be the savior. It offers long term stability which is good for any investment portfolio. The COVID-19 hugely influenced the instability of the stock market, according to the Springer Open.
Often the performance of stocks and bonds is out of your control, whereas in real estate it’s the opposite, you could sell, lease or borrow money against the property at any time of your choice. And thus making your real estate investment more versatile and controllable compared to stocks and bonds.
Short-term, the rental properties in real estate can be overwhelming since the realities on the ground aren't good for your books. Unemployment rate going up resulting in a direct effect on real estate properties such as rent payment. However, in the long term, the money rewards are worth the time and capital investing.
Strategically, you can make wise choices in the right location where reliability is key to your real estate investment in the long term.
Real estate has a low correlation with other classes of assets. For instance, when the stocks are down, the real estate is usually soaring, therefore, this could signal a good time to invest in real estate. According to Zack.com, a leading investment research firm on stock research, analysis, and recommendation, while many might assume a direct relationship exists between real estate and stock market values, statistics suggest a little direct or causal relationship.
It’s a Seller’s Market
According to Realtor.com, despite the pandemic upending last year’s market, the buyers are back and look motivated now more than ever.
It’s seller’s market time, in the year 2020, the housing market realized a surge in sales more than any other year since 2006. The growth represented a historic 22% rise. By August 2020 the home sales jumped 43% higher than the previous year, according to Census Bureau Data. With the numbers, you can tell the demand is rising meaning more people are putting their houses for listings. It might be a good time to invest in real estate.
Pay close attention to advertiser disclosure when buying properties. If you find any new information that is contrary to what was provided then it warrants taking an action immediately. It’s data that influences your investment decisions of whether it's a good time to buy and any bias could be a threat. You could lose money by making wrong decisions. The advertiser disclosure has to top the list of variables to consider in real estate investment.
The COVID-19 is forcing investors to do the unthinkable in real estate, selling even when they thought they wouldn’t consider it. For instance, unemployment has affected the rental revenues in real estate meaning the investors have a hard time keeping up with the necessary maintenance of the houses, insurance, and taxes.
The pandemic has resulted in prices of goods rising meaning, upgrading real estate properties will cost more than before since shipping costs and acquiring the materials are high. “Yet, construction businesses have tempered their expectations slightly as they continue to face supply chain constraints, labor shortages, and increasing costs for materials, such as lumber,” Says Marine Sargsyan, senior economist at Houzz.
In fact, according to the CNBC report, the cost of softwood lumber is up 112% higher than the previous year. Renovating or building houses could be costly at the moment.
How to Tell If this is a Good Time to Invest in Real Estate for You
Just because it’s said now is the right time to cast your net in real estate doesn’t mean everyone will catch. There’s more to what constitutes investing than the word itself. You need to be ready for real estate, otherwise, you’ll plunge into a pool of losses and you’ll only have yourself to blame for no reason. A good time to invest in real estate also means you’re good with making investment decisions. Anyone can make money in real estate with strategic planning. If the following checks with your current situation, no need to worry about this part.
- Are You Confident with Your Income Stream?
- Do You Qualify for Financing?
- Are You Ready to Become a Real Estate Investor?
Are You Confident with Your Income Stream?
The COVID-19 has rendered many jobless, losing businesses, and so on. According to MarketWatch, the US only regained 47% of the 22 million jobs lost at the beginning of the pandemic as of August 2020. However, that doesn’t mean everyone faces the same effects. While some may be having it hard, there are those lucky enough to have their income stream remain stable or even increase.
Analyze your income flow and establish its sustainability in the long run before choosing whether to invest in real estate properties or not. Do you believe you can manage to stay consistent paying for the mortgage and still pay all costs related to housing? If yes, then you are ready to join the den of real estate investors.
If you believe you can have a positive cash flow, then this might be the right time for you to consider investing in real estate properties. A wise choice is to have more than one way to make money.
Do You Qualify for Financing?
Another good wake-up call before your investment decision should be the question of whether you meet the eligibility criteria of the mortgage. LendingTree compiled a list of 2021 mortgage requirements. I’m sure you’ve come across the phrase “money attracts money.” While it may not necessarily be the case, to some extent it brings out a point.
Lenders generally take a look at your past financial history. Is your credit score good enough to attract the interest of lenders? A good rating will pave the way for a financing avenue. Before you invest in real estate properties, make a personal effort to assess all your financing options in case you miss out on a mortgage.
Real estate investing with cash upfront may not be viable for you at the moment. Assess all your financial options and determine whether you are likely to get a mortgage. Establishing such early is paramount to the investment decision in real estate.
Are You Ready to Become a Real Estate Investor?
Real estate investing is not a walk in the park, you have to be accountable for so many things to stay afloat in the market. Invest in real estate if you think you’re up to the maintenance and management responsibilities. Can you persevere in the current market situation for example the unemployment rate that has a direct effect on real estate?
Having a cash reserve to tap in for real estate investing isn’t enough to make you ready for what's ahead. Mentally, you need to be confident about the decision of becoming a real estate investor. Most probably you’ll face a tricky situation where your decision-making trait will be on the line. “When it comes to investing, confidence is key when,” Says Nicole Lapin, an American news anchor on CNBC, CNN, and Bloomberg and a businesswoman.
For example, an extension of eviction moratorium on one hand while facing non-rent payment by tenants who don’t even pick your calls anymore. What do you do in such a situation?
Tips to Consider When Entering Real Estate
It’s good to be aware of market uncertainties in real estate investing to limit taking unnecessary costs along the way. If you’re looking for a get-rich-quick scheme, real estate might not just be the thing for you. It’s a process, a game in the market that if you play well you have all to gain.
There’s a saying in trading, “buy low, sell high”. It’s no different with real estate investing, the same principle applies, looking for opportunities, taking the risk, and waiting for the market price to shoot up.
Here’s what you need to be aware of before you invest in the real estate market:
- Understand the Overall Real Estate Market
- How to Choose the Right Location
- Is Your Credit Score Good?
- Make sure you Have Income Stability
- New Construction vs. Existing Structures: Which Way to Go?
Understand the Overall Real Estate Market
You want to make money in real estate, right? But first, get all information relevant to the field you’re betting your money on. Be aware of the market trends in real estate. For example, by the use of market analytics, you can tell if a certain investment property will have a positive cash flow. You don’t want to invest blindly and risk losing your money. A good way to invest in real estate is to have all relevant information at your disposal.
For a beginner, the internet is flooded with real estate materials you could make good use of and be informed. Besides, take real estate classes if need be, the goal is to be ready for the industry.
How to Choose the Right Location
Not all locations are worth investing in real estate. The location of your investment can be the difference between a positive and negative cash flow. Use all necessary tools to scrutinize the viability of a property to give a good ROI.
Proximity to amenities, market, scenic views, and the neighborhood plays a huge role in property valuation. Take close consideration whenever finding a real estate property to invest in.
Besides, what's the long term view of the location, could it become a threat to your investment. For example, the open land nearby could be turned into a manufacturing facility, thus creating noise disturbance likely to devalue your property.
Scrutinize the ownership of the land and establish their intended use before betting your money on the location.
Is Your Credit Score Good?
If it’s a good time to invest in real estate, is your credit score reflecting the same? Whether you have a cash reserve or not, keeping a good credit score is key to your future investment. Correct your credit score early and keep it soaring high before entering real estate. At some point, you’ll need it to acquire a property through a mortgage.
You should be careful with leverage. Loans offer convenience, committing your future income to enjoy utility today but at the cost of the interest rate paid over a longer period. Real estate investors say the industry is challenged by over-leverage during adverse market conditions thereby, signaling that you need to generally know how to handle loans.
Make sure you Have Income Stability
A long-run game requires a stable income stream you can rely on. Paying for insurance and taxes is a continuous cost and without a stable income to support that you’re likely to have a loophole and trouble ahead.
Seek a real estate investors’ guide before making a step to invest in real estate. They’ll help you prepare for what’s to come.
New Construction vs. Existing Structures: Which Way to Go?
Real estate investors always have to Pick an investment strategy to use. Whether you may want to go with new construction or buying existing structures, decide on that early enough. New construction may offer attractive pricing, the window to customize, and a modern look to your taste.
However, it has a downside, and among them are risks of delay, increased cost, and property boom near the location that outshines your design. On the other hand, existing structures are ready to use offering convenience.
Maybe you’ve decided to go with new construction, what should you be aware of or consider when choosing the construction partners?
What to Look for?
- Review the company’s reputation, the past projects done. You’d want to partner with a reputable company that guarantees timely delivery of the project. Any delay only increases cost and ruins plans.
- How long will the project take before it’s ready for use? Some projects may take more years to conceive than others.
The Bottom Line
Real estate investments diversify your portfolio. It can offer steady rental income flow over time and a substantial appreciation in value in the property. Before considering the investment whether REITS or physical property, critically assess your potential in both and come up with a plan. Invest in real estate when you’re confident and made up your mind based on factual data.
It all boils down to one question in real estate investments, is now the good time to invest in real estate? The bottom line is now is the right time to find a favorable real estate property.
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