3 Reasons Why Now is the Best Time to Invest in Real Estate
01 August 2016
When you, as a real estate buyer, are looking to purchase a home or commercial real estate property, the question you might ask yourself is, "Is now the right time to invest in real estate?" This is a reasonable question - no one ever wants to pay too much for a property or purchase at the wrong time. There are a multitude of reasons you could have for buying a property and an equal number of legitimate concerns. But when you take all factors into consideration, here are three solid reasons why now would be the best time to invest in real estate.
(1) Historic Real Estate Appreciation
The real estate market can fluctuate due to a number of reasons. Supply and demand, geopolitical factors, and financial and regulatory policies, are just a few fluctuation influencers. However, regardless of the number of variables that have influenced the market, historically real estate prices have gone up in value. According to Investopedia, from 1968 through 2004, a period of 34 years, the average yearly housing increase was 6.4%. During this time period there was not a single declining year. Not until an unprecedented financial crisis spurred a housing bubble, did the real estate market record annual price reductions. With new regulations in place to help prevent another financial crisis and a renewed sense of confidence; the real estate market, in many cities across the United States, has again recorded strong annual growth and is at or above pre- housing bubble prices. You should expect that there will be times when real estate market prices will experience fluctuations. But as a real estate owner, you should also reasonably expect that in the long run, real estate prices will continue to historically appreciate. Therefore, if you have found a property that fits your needs, such as finding a property you want to call home, or finding a commercial property that can provide you with solid returns, then now is the best time to purchase. Chances are, in the near future it will cost you more to purchase.
(2) Low Interest Rates Will Not Last Forever
Rates have remained low for a historically long run. But this will not always be the case - rates will rise. There are many in the real estate industry that believe that time will be sooner rather than later. As the United States economy continues to show signs of strength, the Federal Reserve will continue what it began in December of 2015 by raising the prime rate further. For those wondering if now is a good time to purchase, it would be good to note that as borrowing rates increase in the future, you will have less buying power and a higher cost of real estate ownership. Both of these scenarios would limit the property choices you would ultimately be able to consider. Interest rates have remained near historic record lows. If you are a home buyer, you can still qualify for a conventional residential loan with 30 year interest rates in the low to mid 3%'s. This translates to increased buying power and lesser overall cost to be a home owner. For a commercial real estate property buyer, depending on the property type, loans are generally still available in the low to high 3%'s for 5 year fixed programs.
(3) Rental Prices Will Continue to Increase
According to Consumer Affairs, in 42 states throughout the United States, it is cheaper to own rather than rent. Only in the states of Hawaii, Montana, Utah, Idaho, Colorado, Wyoming, Delaware, and Oregon is it still cheaper to rent. It was also reported that the overall inventory of available homes on the market has been going down while new home construction remains about half of what it was before the housing bubble. This is the perfect environment for rental prices to continue to rise - demand outreaching supply. From a "place where you live" stand point, if you have the down payment and financials to get a mortgage, it makes all the sense in the world to own a property right now. Besides the cost savings created by lower monthly payments, a home owner also gets to experience tax advantages, in the form of interest deductions, thereby lowering the annual cost of ownership further. On the flip side, as a commercial property owner, you get the advantage of receiving higher rental payments from your tenants. For stabilized commercial properties that have fixed rate mortgages attached, the cost of ownership tends to remain constant. Compile that fact with increasing rental income and what results is growing revenue returns as well as increased property valuation.
After considering the reasons stated, if you are in a position to purchase a residential or commercial real estate property, and you have found one that works for you, it does make financial sense to consider ownership now. For those that are interested in receiving higher returns that are secured with real estate, without having to be a landlord, there is also an alternative option available in the form of First Position Commercial Mortgages. 5% annual returns are available now on short term one-year holding periods.
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