If you read the headlines, you’d get the impression that the housing market is taking a beating. Housing prices are dropping fast, interest rates are rising, and typically hot housing markets are beginning to cool off. You might be worried if you’re considering investing in real estate right now. However, investing in rental properties right now might be a wise financial move. Keep reading to find out why.
Prices are dropping
The most obvious reason to invest in rental properties is that prices are decreasing. While home prices are still above where they were several years ago, most aren’t pricing as high as they were just a few months ago. If you’re looking to buy a property to rent out, you could find some good deals right now. In addition, if you already own a property, your equity has probably gone up in the last few years as prices have dropped. You may be able to leverage any equity in your current properties to fund additional investments.
Buyers are priced out of purchasing
Average interest rates on mortgages are over 7%. This translates into lower buying power and higher monthly payments for potential homeowners. While these higher interest rates could also affect investors seeking financing, it also presents an opportunity. Since many buyers can’t or don’t want to purchase while interest rates are high, they’ll need homes to rent. Investors can provide necessary housing to people who aren’t buying right now. In addition, as more buyers are priced out of purchasing, the demand for rentals will continue to go up, which could mean higher rents for you.
Real estate is an excellent long-term investment
Investing in real estate is (typically) a long-term decision. Purchasing a multi-family residential property is a commitment. Fortunately, real estate tends to perform better as a long-term investment, so it’s a good fit for investors who want a reliable way to let their investments grow over time. Rental properties also provide regular cash flow, which can be helpful if you want to purchase additional properties.
What you should keep in mind
As an investor, there are a few things you’ll want to remember to maximize your chances for success while reducing your risk of loss.
- Purchase properties in neighborhoods with steady employment rates and access to amenities.
- When purchasing a rental property, focus on potential cash flow versus appreciation. As housing prices shift downwards, appreciation likely won’t be in your favor.
- Understand the local laws regarding landlords and tenants. Most landlords will have to deal with a problematic tenant at least once; some markets are harder to navigate for a landlord.
- Keep your emotions in check. You may love a potential property, but that doesn’t mean it fits your goals. Remember to remain neutral and focused on the numbers when making an investment decision.
- Higher interest rates mean you’ll pay more for a loan than before. However, if you plan to own the property for at least five years, you may be able to refinance later.
While there are some risks associated with investing in real estate right now, there are also potential rewards. If you’re considering adding rental properties to your investment portfolio, now could be a good time to do it. If you want to learn more about purchasing multi-family properties, reach out today. We’ll answer any questions you have.