by Jim Jones
Brick and mortar, there’s no better way to save your money. And for decades, the most solid investment you could make was in real estate. But is this still the case? If not, when will it be a good time to invest in real estate once again?
According to the information in this infographic on the odds of becoming rich, 5.1% of the world’s wealth is held in real estate. To be honest, we’re quite surprised at this figure; we thought it would be a lot higher than that. Could this low figure be somehow related to the most recent global recession? We’re not quite sure. But one thing is for certain, if investors have any sense, that figure should change in the next year or so.
Traditionally, there was this belief that if you bought property at a reasonable enough price, then you simply couldn’t lose money on it. But then came the slump in the economy and people who had invested their hard-earned cash in property found themselves stuck in a home that they couldn’t sell. Or worse, with an investment property they were losing money on each month.
So, if that’s the risk we run, why would we want to invest in real estate at all? Well, the benefits while simple to explain are quite significant.
First off though, we just have to say that you should never invest all your money into a property. Try to keep some of your savings in a separate and secure investment. Remember that advice about eggs in one basket? Heed it.
Investing in real estate is almost like making a double investment, and this is particularly true if you need to borrow very little or nothing at all to purchase your property. With a small mortgage repayment, you can charge rent that will cover the costs and then some. This extra cash can go back into the upkeep of the house or another investment. Add to that the fact that your property should increase in value over time and you have your self the perfect investment.
But what about the current climate? Is it wise to jump into the property market right now?
The answer to these questions depends on your location. The high prices in Seattle, New York, San Diego, Los Angeles, Denver, San Francisco and Boston mean that you need to have either a high income to secure the loan required or a lot of money in the bank to minimize the risks. Yet while property prices are sky high in those areas, this also means that rent prices are too and there are plenty of people willing to pay. However, if you already own a property in one of those areas, you might want to sell it and invest in several smaller properties in other affordable areas. Eggs in many baskets!
Areas such as Baltimore, Nashville, Minneapolis, Atlanta, Buffalo and Dallas offer buyers the perfect opportunity to invest in rental properties. In these areas, you buy property cheap (low mortgage payments) and charge higher rents. For some, the median rent for the area is double the average mortgage payment. If that’s not reason enough to invest, then we’re not sure what is.
Another reason to invest would be to take advantage of the low-interest rates. Although we’re not seeing the 125% mortgages we saw back in the early 2000s, the current rates make borrowing money (even when a 20% deposit is required) something you should probably do sooner rather than later.
While some realtors have a reputation for aggressively pushing people to buy regardless of the current climate, we’re happy to say that at this moment in time, they’d be correct. With low-interest rates and many affordable areas with high-rent income potential, buying realty as an investment opportunity is a great idea right now. Just be sure that you don’t put all those eggs in one basket.