With rising home prices, is now a good time to get involved in real estate development or investments?
A 2020 National Association of Realtors report indicates a 22% increase in home sales compared to 2019. What does that mean for you as a potential investor?
The Best Time to Buy a House Was 5 Years Ago
Although home prices are soaring in this current seller’s market, the low-interest rate trend can help offset the cost of the investment over time. Mortgage interest rates are historically low in 2021. As of July 2021, interest rates were as follows:
- 30-year fixed-mortgage is averaging an interest rate of 3.03%
- 15-year fixed-mortgage is averaging an interest rate of 2.31%
To find the best rates when investing in real estate, refer to a mortgage broker. You’ll need to have your current credit score, an idea of what your down payment will be, and an understanding of your debt-to-income ratio. These factors and more can affect your eligibility for a lower interest rate. With properties being snatched up in a matter of days, keeping accurate financial reports can make or break your chances of securing a good mortgage interest rate,. If you don’t have pre-approval for a loan, it can be almost impossible to get all the paperwork in order and make an offer before a property is under contract with someone else.
Why Real Estate is a Good Investment
Investing in real estate is usually better than investing elsewhere, such as in the stock market. No matter how the value of your property changes, eventually it will increase.
While mortgage interest rates are great right now, costs to build are soaring. With shortages of raw materials and labor, not only does it cost more to build, the projected timelines seem to extend far into the future. In early 2021, we saw the price of lumber increase by 112%; yes, you read that right!
Thanks to people spending more time than ever in their homes, the desire to remodel or build new has increased demand for supplies, causing prices to soar. That unpredictable trend put the lumber industry in a tailspin because their 2020 projections became wildly inaccurate and they weren’t prepared for the sudden building boom. Add to that the loss of workers due to social distancing practices and it’s hard to tell if the industry will catch up any time soon.
Regardless, if your income is secure, it’s a great time to invest in real estate. With higher demand comes the potential for higher payouts.
Things to Consider When Investing
Just because a property is priced right doesn’t mean it’s the right one for you. When you want to purchase a property, be sure you’re looking at it through the eyes of your potential client. Before you buy, consider:
- New Construction vs Existing
- Demand for Housing/Business Rentals
- Residential vs Commercial Property
Your property should be in a desirable location for renters or buyers, and what you invest in should reflect current trends. Are more people looking for new builds or for a property that already exists and is ready to go? Are people looking to rent (potentially from you), or are they more interested in buying for their home or business? Do you want to be a property manager for residential or commercial rentals?
Top Housing Markets in 2021
Popular locations in 2021 include the following states. However, if you’re not able or interested in property in these areas, talk with a real estate agent to determine what’s hot in your own state, county, or city. Residential versus commercial will also influence where it’s best for you to invest, so take the property’s use into consideration.
- New Hampshire
- North Carolina
- Washington state
How to Get Started in Real Estate Investing
Whether you’re looking to diversify your investment portfolio, or just get started, real estate can be a good route to take. You might invest for future payout, or to supplement your current income now. Whatever the case, how do you get started in real estate investment or development?
Short-Term Vacation Rentals
If you’d like to start small, consider renting a room in your home for short-term vacation rentals. Via Airbnb or VRBO, you could see if acting as a landlord is for you, whether it’s just a room or your whole house. If you already own a second home, it’s a good way to start making it pay for itself by renting it out when you’re not staying there yourself.
Long-Term Rental Properties
If you’d like to go a more traditional route, you could simply offer up a property you currently own for long-term rentals. Working with a property management company or doing it all yourself, you can earn additional income or at least have the property pay for itself via rental income.
There are a variety of ways you can set up your rental property; maybe it’s parcelled out room-by-room in a college town or rented as a whole to a family. Maybe you invest in an entire apartment building and manage multiple units; just be sure that whatever you choose to do, you can manage unexpected expenses such as repairs or vacancies.
Real Estate Investment Trusts
Also known as REITs, these trusts are for investors who want to dabble in real estate without actually owning a property. A REIT is created via a trust, during which the investor’s (or investors’, plural) money is used to purchase an income property. These properties can then be sold for a profit. The trust must then pay investors 90% of the taxable profit, thus avoiding income taxes on the sale.
Properties purchased by REITs can include residential and commercial properties, and the transaction doesn’t require a realtor when it comes time to cash out.
Real Estate Investment Groups
Referred to as REIGs in the business, these groups allow an individual the benefits of owning rental property without having to manage it themselves. REIGs do require capital, but a group of people goes in together like a mutual fund. With the funds, the group can purchase investment properties or build them from the ground up.
One of the benefits of participating in an REIG is that you’ll have rent protection in the event your individual rental unit is unoccupied. The group collectively manages all the units, and a portion of all rents collected are pooled for incidentals.
Online Real Estate Investments
Do you know there are online real estate platforms that can help facilitate the purchase and sale of properties? Capital is procured via crowdfunding, forming a group of investors. You can invest in a single project, or get involved in a whole portfolio. Online access means you’re not limited to a certain locale, and it’s easier to diversify your investments. You do need to meet certain criteria depending on the platform, so do your research to find one that’s the best fit for you.
Home renovation shows may make it look easy, but house flipping isn’t for the faint of heart. It can be a great investment, as it often involves purchasing the worst house in the best possible neighborhood. Flipping it gets the house up to snuff so it can compete with comparables and potentially allow you to turn a profit. This can be risky, so it’s important to have a reliable team or partner to help you calculate how much you’ll put into the property, how long it will take, and how much you can list it for when done.
There are a variety of ways to get involved in real estate investment, no matter what your capital or where you live.