Is Now A Good Time To Invest In Real Estate?
When it comes to our finances and especially when it comes to investments, we tend to get in this mindset of waiting for the right time. We want the moment to be right. We want the market to be primed for the best deals, the best rates, the best chances for our success. There’s something in us that wants everything to fall into place perfectly, but if we’re honest with ourselves, waiting for the perfect moment means we’re never going to get started at all. We get wrapped up a lot in timing, as if we can hit the buzzer at the right time and win more in the real estate investment lottery. But here’s the thing: it’s not really at all about when you jump in. A lot of investors jumped in the wake of the last U.S. recession, when the foreclosed homes were plentiful and deals were everywhere and investing was easy.
When preparing to purchase a home, buyers need to know that there are more costs involved than the list price on the property. There are closing costs and there are carrying costs to consider. Closing costs occur one time, at the close of the sale of property. However, carrying costs are those expenses that reoccur as they are necessary for the upkeep of your home. First, consider the mortgage payments. These are monthly payments that must be paid to your mortgage holder, whether it is a bank, an individual or another financial institution. It's important to determine the amount you are able to pay, not just today, but looking toward the future. A mortgage is often the largest investment an individual makes in his lifetime. Secondly, consider property taxes. These generally occur once a year and must be paid either to the county or city your property is in. If your property is located in the county, county taxes will be required. However, if your property is located in the city, both county and city taxes may be required.
Risk and Return
Perhaps the best place to start is the acknowledgment that Investment Risk is present in all investments, including real estate. Next, think about the different variables that may cause volatility in the returns (cash flow and appreciation) you expect to receive on investment properties being considered. The higher the loan-to value of the mortgage, the more risk. The closer the maturity dates on the mortgage, the greater the risk. Variable rate debt often carries more risk than fixed rate debt. In real estate, it’s easy to forget about spreading your risk across multiple properties.
Investors choose investment property based on two factors: yields and liquidity. Property that is easy to sell and purchased at market value is liquid. Conversely, assets that are harder to sell and transact for a discounted price are considered illiquid. Real estate is one of the most illiquid assets because it requires more capital to buy than securities or precious metals for example. It also takes longer to sell property, both to find a buyer and complete the transaction process. Property assets are also limited to their current location (immobile) and affected by changes to the local market. It’s also common for buyers to request discount in exchange for a faster transaction.
Success in real estate cannot be achieved without proper goal setting and planning. Goals aim to provide a clear understanding of what you’re striving to achieve. In real estate, investors need to not only comprehend their objectives before getting started, but also determine the steps including their real estate goals to achieve them.