One of the effective ways to build long-term wealth is to put money into real estate. Many investors want to buy real estate because it goes up in value quickly and can be a good source of passive income. But the real estate market is also known for being unstable because there are a lot of things that can change its value. Economic indicators, consumer demand, social and economic factors, and government policies can affect the real estate market.
“What is the most important thing to think about when making a real estate investment?” Many people believe that location is the answer. But in reality, timing is just as important. Investing in real estate at the right time will have a significant impact on how well it works out in the long run. If you buy a house in a great neighborhood without thinking about housing market trends and real estate cycles, your investment could go wrong.
So, when is the best time to put money into property? In this post, we’ll be discussing five indicators that you’re ready to invest in real estate.
1. Financial Capability
The truth is — for real estate to be a good investment, you need to have a lot of money. In addition to purchasing the property, you will also be responsible for paying any applicable home loans, property taxes, maintenance costs, and other applicable fees.
Most of the time, you will have to pay between 3% and 20% of the total price upfront as a down payment. For a $250,000 home, for example, the down payment can be between $7,500 and $50,000. You will also have to pay closing costs ranging from 2% to 5% of the property’s price. In addition to these initial costs, there will be ongoing costs like mortgage payments, property taxes, maintenance, homeowners insurance, utilities, and HOA fees.
Being financially stable means you have enough money to pay for all of these things without having to cut back on other things you need to pay for. It also means having a good credit score, which lets you get reasonable mortgage rates. In fact, if you have enough money, it would be a better idea to buy an investment property with cash right now and stay out of debt.
2. Enough Equity On Your First Home
Planning to invest in real estate doesn’t always mean that you need to have enough money for a down payment. If you already own a rental property, you can use its equity to get financing for another one.
Let’s say you paid $500,000 for your first home. If you’ve already paid off $350,000, you have $350,000 worth of equity in the property. You can get a home equity loan or a home equity line of credit to buy a second home with the equity in your first home.
3. Research
When deciding when to invest in real estate, doing your research is a crucial step. This means that you should do your research before you sign on the dotted line. Whether you want to buy a multi-family home, condo, townhouse, or apartment, there are a few things you should do to reduce risk and get the most out of your investment:
- Real estate market analysis: The first thing you need to do is look at the real estate market where you want to invest. You can use things like rental income, listing price, cash on cash return, and Airbnb occupancy rate to compare different neighborhoods. When analyzing a neighborhood, you should also think about its population growth, economic growth, crime rate, local laws, and how close it is to amenities.
- Analysis of rental properties: Once you’ve found a good area, it’s time to look at listed or even off-market properties. You can use tools to give you numbers like cash flow, cap rate, cash on cash return, and an occupancy rate that will help you quickly judge any deal on the market.
- Home inspection: This will help you find any problems with the property you want to buy as an investment. During a general home inspection, the roof, heating and cooling systems, electricity, plumbing, the water heater, and kitchen appliances will all be looked at.
You might also want to have a professional check for bad drywall, radon gas, lead-based paint, water damage, or damage from insects.
4. Buyer’s Market
Every real estate market fluctuates due to supply and demand forces. As an investor, you’ll have to determine whether the neighborhood is experiencing a seller’s or a buyer’s market before deciding when to invest in real estate.
What does “seller’s market” mean? When demand exceeds supply, that’s when the market becomes a seller’s market. This means that buyer interest is high in the market, but there are few homes for sale. The scarcity of property leads to intense bidding, which eventually drives up house prices.
A buyer’s market, on the other hand, occurs when supply exceeds demand. There are numerous properties for sale, but there are few interested buyers. Homes stay on the market for longer than usual in such a market. As a result, sellers are more willing to reduce their prices to attract buyers. A buyer’s market is thus an excellent time to invest in real estate.
5. Perfect Time Of The Year
Winter is arguably the best time to look for real estate deals. Because most people are preoccupied with the Christmas season, there are few buyers competing for the available properties. Also, moving with young children is extremely difficult in the winter. Because of the low demand, you will have an advantage at the negotiating table and can extract more concessions from the seller.
You will also have many houses to choose from. Furthermore, buying in the winter allows you to detect snow-related issues during the home inspection.
Spring is the second-best time to invest in real estate. There will be an increase in the number of properties for sale and sellers eager to capitalize on the increased demand. You will stand out from other buyers if you are prepared with cash or a mortgage pre-approval letter.
Key Takeaway
‘When should I buy real estate?’The judgment of when to invest in real estate should really be based on a combination of two or more variables listed above. For example, even if you have all of the necessary funds, you should still do your research before purchasing an investment property. And remember, never try to beat the market – if you find a decent real estate deal, have conducted your market research, and have the funds, don’t wait for a buyer’s market or the winter to arrive.
