Are you thinking of investing some of your hard-earned money, but you’re scared of the volatile stock market? Bond and CD rates are quite low, so if you want to make a good return on your cash, now is the time to purchase a rental property. Overhyped in the mid 2000s, real estate got a bad rap recently due to the precipitous fall house prices have experienced over the last four years. However, due to three factors, there has never been a better time to buy a rental property.
1) Low Housing Prices
In many areas of the nation, housing prices are as low as they’ve been in a decade, and are continuing to edge lower. There’s a glut of homes on the market, as banks try to sell off the REO properties they acquired through foreclosures. This extra supply — combined with real estate’s current unfavorable status — means demand cannot keep up. This in turn leads to low prices, something you as an investor can take advantage of.
2) Low Interest Rates
Mortgage interest rates are near all-time lows, and the Fed has promised to keep rates low for the near future. Not many have the ability to purchase a property in all cash, so most investors will need to get a mortgage. But who wants to pay more interest than they have to? With today’s low interest rates, you not only will pay less interest over the life of the loan, but your monthly payment will be less, leaving you extra cash when your property is rented, and not costing you as much if it is vacant.
3) Lots of Renters
Many people right now are looking to rent. Some have a foreclosure or short sale on their credit history, and are unable to purchase a home. Others are scared of what happened to the housing market in the past few years, and are unwilling to buy a home. People in their young 20s, graduating from high school and college, look at the potential hassles involved with owning a house and look at recent history and decide they may never buy a home. Further, the credit market is tight right now, as banks are reluctant to make loans, so many people may not qualify for a mortgage. All of these people — those unwilling to purchase and those unable to purchase — are now renters. Take advantage of that, and become the person they are renting from!
The first two factors of low prices and low rates, in combination with one another, have contributed to rentals having a better cash-flow now more than ever. In combination with the third factor, renters, you are poised to make a great return on your money. This is ignoring the other potential benefits of real estate, such as eventual appreciation, mortgage principal payoff (your tenants paying off your mortgage for you!), and mortgage interest tax deductions. Rental properties are once again looking like a great investment.
Author Lara Nelson advises buyers of their options in finding a mortgage insurance policy. She suggests reviewing a buyers guide before making a decision.