When is the best time to invest in real estate? This is the number one question I get asked daily. From seasoned to first-time investors, the question still remains. In this blog post, I will break down some of the basic, foundational components, that will impact your decision.
Despite what you may think, there is no specific time of year or magical formula to predict the “perfect time” to get into the real estate investing game. However, the following criteria consistently operate as valuable indicators of when you should make a move and when you would be wise to hold off.
A Surge In Rental Rates
One of the most obvious things you should analyze before diving into real estate investments headfirst would be the strength of the local rental market. Are people renting or buying? Is there a shortage of available properties? Can you reasonably expect to yield a positive cash flow based on the average rent and percentage of vacancies?
If you are like most people that hesitate to invest in buy and hold properties, it is likely because the people in your life have told you that it is risky or warned you that now isn’t the time. However, random opinions don’t speak as loudly as the cold hard numbers.
Given the recent strength of the economy and the overall real estate market in the country, it is unlikely that you will find landlords that have had to reduce their rental rates. Furthermore, as many Millennials have been priced out of the market due to shortages of inventory in large markets, many are forced to rent and have the money to afford to pay more for rent than in previous years. For the seasoned real estate investor, this is a strong indicator that this is a profitable time to have a growing portfolio of buy and hold properties.
Diversity In Financing Options
Now that the economy and real estate market has bounced back from the recession, lenders are becoming more and more relaxed and creative with their products. In the years following the crash, it was exceedingly difficult to be approved for a loan. However, that is no longer the case. Not only are there plenty of non-traditional mortgage options available now, but there are less stringent requirements leading to approval. In fact, some banks are even lending to people that don’t have a tax return available; a traditional requirement for proof of income.
Another option that you may wish to consider is seller financing. In this scenario, the current owner of the property takes on the role of the bank. Since this is frequently done with no money down, it is a very attractive option to those eager to invest that don’t yet have a huge bankroll to play with.
A third option that some newbie real estate investors with limited liquidity are implementing is using their IRA to purchase their buy and hold properties. To do this, your IRA must function as a business and all expenses and profits resulting from the property belong to the IRA.
Sellers Are In Distress
A distressed seller is one that is desperate to unload their property. As an investor, this is a huge plus because it means you are likely to negotiate a price and terms that are in your favor. When the economy crashed, the majority of sellers were in distress because they couldn’t afford their mortgages. However, there are a number of factors that can cause a seller to find themselves in this position aside from finances. For example, when an unwanted property is inherited from a deceased family member, many prefer to sell as quickly as possible so as not to be bothered with maintenance, upkeep, etc.
When the property itself is in distress, this can create a similar sense of urgency with the seller. Many people do not have the desire or resources to fix the property up and would rather cut their losses and unload it to someone who does. Again, this can result in a lower purchase price, seller financing, and more favorable terms for you as an investor.
You Need Leverage
Obviously, the reason that people invest their money is to put it to work for them and provide a better life or retirement for themselves. If you are new to investing, real estate or otherwise, you may not have a lot of money to play with. In other words, you’re in need of leverage. Unlike the stock market, real estate will allow you to leverage a smaller sum into a favorable profit. For example, if you invest $200,000 into the stock market, you will need the full $200,000 up front. However, if you wish to invest $200,000 into an investment property, you would only need $40,000 (for the downpayment). If both investments increase by 5% you will end up with the same profit. However, you didn’t need to invest nearly as much of your real money in real estate to make the profit as you did in stocks.
What Investors Can Expect In 2019
When you take each of these key indicators into consideration, you will begin to understand why both seasoned and rookie real estate investors are so excited for 2019. No matter how much experience or money you have, there is plenty of money to be made this year. In many markets, rental rates are strong with the potential for growth, there is plenty of diversity in financing options, you can always find a seller or property in distress, and real estate is more stable than the stock market. In other words, if you’re wondering when the best time to invest is, there is no time like the present.