In the past, real estate has been a good investment. But what about now? In this article, we will discuss three ways that real estate is an excellent investment.
1. Real Estate Has Always Been A Good Investment
Real estate has always been a good investment. For years, real estate has provided the best returns in America. In fact, during the Great Depression of 1929-1939, real estate made up almost 25% of total investments in America and was second only to stocks. The stock market crash did not end real estate’s dominance over the economy. It helped bring about the end of the Great Depression and allowed for recovery. At some point in history, property owners usually had to wait a long time before they were able to sell out a property for a profit. However, in recent years, selling a property is becoming more complex due to increased demand and lower supply.
2. Buying is Becoming More Affordable than Renting
As the prices of houses rise, in many areas the cost of a monthly mortgage is more affordable than renting. Buying a house is no longer just for the rich, as some cities are seeing a shift in lower-cost housing and mortgage affordability. The price of renting a home is directly affected by rising real estate asset values. Renters in expensive cities are finding it difficult to pay their rent. Some renters are leaving the city for cheaper places to live out of necessity.
3. Interest Rates are at an All-Time Low
Buying real estate is a significant investment. Interest rates are currently at an all-time low and have been dropping for the past few months. There has never been a better time to buy a house or take advantage of the current market conditions to refinance your mortgage. Low-interest rates translate to saving on the total mortgage cost.
Is Investing in Real Estate Safe?
Investing in real estate is not only an excellent way to make money, but it’s also a safe way to build wealth. Here are some helpful tips for investing in real estate that will help you make intelligent investment decisions.
Buy listings with a good return on investment.
Although the market and price fluctuations are constantly changing, knowing what is considered a good ROI for your investments is essential. In general, residential properties will have a good ROI if they have ample square footage or are in an area with a high demand for homes per-square-foot basis.
Before investing in any property, it is essential to research and find out the market average rates of return on investments. You should also review the rental income and vacancy rates for the area you are considering investing. The rates of return on investments vary by property type and location.
The following figures are averages of the most recent 10-year period in property types with a monthly rental rate of $1,000 (or an equivalent annual rent):
Mobile Home: 7%
Single Family Home: 6%
The rental yields and figures are calculated by looking at the average monthly rate of return on a property but do not include taxes or insurance.
You should never invest more than 20% of your net worth in one property. There is a possibility you could lose everything if something goes wrong with that property. The best way to invest is in high-quality properties with a proven record of steady rental income.
Why Investing in Real Estate Makes Sense for Most People
It’s no secret that investing in real estate is a great way to make money. This section will explore why investing in real estate makes sense for most people. With the initial cost versus the long-term return, you might not be able to afford a big house or a fancy car. But, if you find the right home or property, you can make money on it.
Let’s say you buy a $200,000 home in good condition with no mortgages and generates around $3,000 per month in rent. In the first year, you will make $8,000. After five years, your investment would be worth $228,000, and you would have made $36,000.
Likewise, if you lease a new car on a long-term contract for $350 per month (including insurance and gas), it might be expensive to buy one in the first place. But, if the car is worth $12,000 at the end of the lease and you make a profit of $1400 each month, it will pay for itself in under two years.
In the expense versus return ratio when it comes to real estate investment, there are two factors that you must consider:
- Initial Cost
- Long-Term Return
You might be wondering if you should invest in real estate. The answer is yes! Real estate has been a good investment since the beginning of time.
There are many different types of real estate available for investment.
Some of these include:
- Single-family detached homes
- Multi-family buildings or condos
- Commercial properties like offices or retail stores
- Rental properties, including apartments, rooms, and houses
Three Reasons to Invest in Property Now
Is it a good time to buy a home, or should you rent? Let’s look at why you should consider investing in real estate sooner rather than later.
1. Interest rates are historically low
Interest rates have gone up and down between the 5% range to the 20% range. Today, though, interest rates are at an all-time low. If you invest in a mortgage now, your monthly payments will be much lower than they would be if you waited for the numbers to increase again or if you choose to rent.
2. Home prices are high
No one knows how high home prices will go, but they are at the highest level they’ve ever been. If you wait, your potential returns could be better in the future. Still, the risk is that home prices could decline further, resulting in losses on your investment.
3. The rental market is poor
Rental prices have been rising in recent years. More and more people are looking for apartments or homes to rent. If you’re considering buying, now is when you should consider renting to get your money back with a few years of rent payments.
4. Significant Tax Benefits
Homeownership provides significant tax benefits that are not available to renters. For example, homeowners can claim a deduction for mortgage interest while renters cannot. Homeowners can also deduct property taxes and the yearly expenses associated with owning the property, such as maintenance, utilities, and repairs. Property owners also have access to a capital gains exemption. The capital gains tax is exempt for those who sell a principal residence if they lived in the home for at least two out of the five years before selling.
Conclusion – Why real estate is a good investment
Buying a home is a long-term investment. Housing prices have historically risen much faster than inflation, and you can see this increase over time when purchasing a home. Real estate can be the ultimate form of financial security because it will typically be worth more than the amount you paid for it.
Learn more about how to start investing in real estate, click here.