How To Determine the Best Time To Invest in Real Estate
Investing in real estate is often part of a retirement plan, college fund, or passive income at almost any part of life. Real estate investment takes on a few different forms, but each involves personal financial capability and the actual real estate market itself. Understanding the importance of both helps in determining the best time to invest in real estate. Before investing, review the following points so you’ll feel confident when the time is right.
You’ve Carefully Analyzed
You’ve found a great house you’d like to purchase for investment. Unfortunately, proper real estate investment takes more than a great house. Ask yourself these questions before jumping into the purchase of real estate.
What’s the Temperature of the Area?
Of course, we don’t mean the weather, but rather the temperature of the market where you are considering investing. Analyzing the market is how we determine the hotspots in cities or towns. In other words, will the house sell or rent easily for you? Check out past listing prices of the home and see if it sold near that price or above or below the asking price. Has the property value increased or decreased over time? What about properties nearby? How about property taxes and the care of schools? It’s important the entire neighborhood is desirable when investing.
Looking for past rental increase or decrease on the property and also what the median rent in the area is gives you an idea of general housing prices in the area. You can even check out VRBO (vacation rental by owner) and Airbnb (air bed and breakfast) in search of what they charge for visitors in the area. Basically, you want a positive market analysis. If it’s not a hotspot, you may want to consider investing elsewhere.
Never jump in without a thorough home inspection. It’s easy to fall in love with a property and overlook pitfalls—assuming it’s all repairable. The list of repairs adds up quickly in a home that needs a lot of TLC. House flippers expect plenty of repairs, but even they have their limits. Know your physical and financial limits, and back out if the results of an inspection are putting you in over your head.
One more thing to consider with home inspection is diving deeper by hiring inspections specializing in radon mitigation, mold remediation, and insect damage.
You Have Equity
Once real estate investing begins, the goal is to gain equity in each home so the return on investment funds the next investment, and so on.
In other words, if the first home you invested in is now nearly paid off, use the equity in that home as leverage for a home equity loan or another home loan as a down payment for the next investment. It isn’t wise to begin collecting several investment properties with no previous equity. Take your time building, so you’re never stuck in a place where mortgages aren’t paid.
You Are Financially Stable
When determining the best time to invest in real estate, don’t overlook your own financial state, assuming this property will bring you out of hardship or quickly increase your monthly income. If you’re struggling financially or have nothing extra to spare, now isn’t the time to invest in real estate.
Purchasing a property takes money, of course, and often more than one expects. With the down payment, closing costs, investment properties, and necessary repairs and cosmetic improvements, a savings account could drain quickly.
Build equity in your own home first. You should have emergency savings established, excellent credit, a low income-to-debt ratio, and enough financial freedom to take care of surprise investment expenses without struggling to stay afloat.
It’s the Right Time of Year
Everything has a season, including real estate. There are two great times to purchase real estate: spring and winter.
Most home sales happen in the spring simply because families prefer moving over the summer and getting settled before the next school year. For that reason, investors find more homes on the market during this period.
However, there’s a downside to spring real estate shopping. Since everyone is listing and buyers are buying—often desperate to get into something—sellers have leverage to wait on the best offer. There’s great inventory but also plenty of buyers.
Hunting for the right property in the winter is chilly but often worth it. While other potential buyers are hibernating and waiting for spring, it’s your chance as an investor to search for a great deal. Sellers choosing to sell in winter are often more desperate than those in the spring simply because the buyers aren’t knocking as frequently.
Yet, there’s a downside to everything. Because it’s winter, the selection of houses for sale lowers drastically. You may make a low offer and have it accepted because a seller sees no one else coming along, but the choices of houses to offer on are few.
Whose Market Is It?
If the market isn’t right, seasons won’t matter. Take a look at the market in the area you’re considering investing in and see who it belongs to.
If it’s a sellers’ market, inventory is low, and sellers are probably getting multiple offers as the low inventory disappears daily. If it’s a buyers’ market, inventory is high, and buyers are selective because they know they can go find another home if a seller doesn’t accept an offer. This puts sellers in a tough spot.
When you understand the market as an investor, you’ll know how to strike when the iron is hot.
Evaluating the points we’ve discussed, understanding the market, and preparing yourself financially will set you on a path for successful real estate investment.
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