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cheap investment property
If you are looking for cheap investment property, now is the time to buy!
Not only are real estate resale prices still lower than they have been in years, the mortgage interest rates are also near all time lows. This represents a rare opportunity to buy properties for much less then you would have previously paid, with a lower mortgage payment as well. Clearly, with these two conditions coming together in this manner, if you are on the fence about this type of investment opportunity, the time to act is now! To help you discover more about this topic, and how buying real estate can benefit you, let’s examine it in more detail below.
While you may be put off by the slump in the market, the truth is, the best time to buy is when everyone is negative. Why is this true? When everyone is interested in buying real estate, then you will pay a premium when it comes to the price. Yet, now you can get the same property for far less, simply because the prevailing opinion is against property at the moment. This trend is nothing new, and in fact the last good example comes from the real estate market itself.
Remember back a few years ago, when everyone believed that property would never lose its value? In fact, buyers believed that not only would the market stay even, but that it was almost guaranteed to rise higher each year! With the benefit of hindsight this sounds rather naive, but it wasn’t just inexperienced first-time homeowners who held this position. Huge banking institutions were nearly bankrupted by this blind optimism as well, as they purchase billions of dollars worth of sub-prime mortgage debt.
What does this have to do with you profiting from cheap investment property? Rather than be blown about with the wind of popular opinion, why not benefit from going against the flow instead? Most investors lose money when they follow the crowd, and it is by buying when everyone is scared that you will make a profit! After all, real estate is a commodity which everyone needs, so it has inherent value. Therefore, though it is currently in a price correction, the underlying value can never be lost completely. People need homes in which to live, and this is an unchangeable fact. So, it is best to purchase your property at a time such as this, when by and large most listings are under-priced.
Further, the current market conditions make your job as an investor easier as well. How so? Several years ago when most properties had an inflated price, you had to work much harder to find cheap investment property. After all, if you overpay when you buy, you won’t make a profit when it comes time to sell! Yet, paying too much will hurt your rate of return in another way too. Your down payment in a property represents your total investment. The rent which you can collect, minus any expenses for maintenance and upkeep, is your profit for the year. If you can collect only the same amount of rent, yet have to put down ten or twenty percent more, then your return on investment will be lower overall.
Clearly, as you can see from the above information, now is an excellent time to buy. Yet, another advantage can be had at the moment, and this is the low mortgage interest rates. As a landlord, your tenants will be paying off your mortgage for you. with their rent each month. However, the less interest you pay, the less your monthly payment will be. That means more of your rental income will stay in your pocket, rather than being used to service your loan. This alone makes obtaining a loan during this time worth looking into.
However, a second benefit from these low interest rates is offered as well. Over the life of a 30 year fixed rate mortgage, you actually end up paying more than double the purchase price! So, for example, a $150,000 home will probably cost somewhere in the neighborhood of a staggering $330,000. Yet, if you get a loan paying only 4% interest, rather than one with 6% instead, your additional payment will be far less. That means your equity base in the property will build up much faster, and you will profit even more.
Keep in mind that cheap investment property has a final advantage too, which is tax deferred options. If your equity builds up to the point where you want to sell, you can upgrade to a more expensive property without paying taxes. How can you do this legally? Through what is termed a 1031 Exchange, you can sell your current real estate and take the equity gains. Then, you can roll this over into a payment for a bigger property, and you won’t pay any tax for the original sale. Why is this so important? If, for example, you have $200,000 of equity accrued, the taxes on this sum would be rather substantial. Yet, you will pay nothing, and can put that entire amount towards your next purchase instead! This allows you to build up your investment portfolio in a much faster way, which is not offered by other opportunities.
So, if you have been wondering if the market is right for you to enter, the above information should help you decide. With low asking prices, you can now purchase property which you could never afford a few short years ago! That means for the same amount of money invested, you can control a much more valuable property. Why is this a strong selling point? If you recall from our discussion above, the higher the rent and the lower your down payment, the greater your return on investment will be. With rentals still in high demand, you have the opportunity to get a significant bump in your investment returns in real estate today.
Further, the low interest rates will reduce your monthly payments, meaning you’ll keep more of your rental income. You’ll also pay off your property faster as well, and your equity will build up quicker too.