Is Now a Good Time to Invest in Rental Property?
June 3, 2020 / by Hignell Property Management Team
With so much uncertainty in the world, you may be looking for a way to secure your savings for the future. Real estate is a tried and true method for building and protecting wealth. But with the economy in such a precarious position, you may be wondering if a rental property is a good investment at the moment.
The answer is that there is never a bad time to invest in real estate, but you have to be smart about it. You’re swimming in uncharted waters – which brings risks to those who are unprepared and rewards to those who are savvy. Here are a few tips to help you decide if now is a good time to invest in a new rental property.
Is There a Consistent Demand for Rentals in Your Area?
A rental property is always a wise investment if there is a consistent demand for renters. Even if property values have taken a hit and you’re not able to collect as much rent in the short term, you’ll turn a profit in the long term if the demand is constant and rising. But, it may be smarter to wait until the market recovers if the demand has stagnated and there’s a chance of long term vacancies.
Factors that impact rental demand include the unemployment rate, population growth, and the rate of homeownership. If population growth has stagnated and local residents are buying homes to wait out the pandemic, now may not be the time. But if employment rates are recovering, population growth is steadily increasing and there is a healthy pool of tenants, a rental property is a smart investment. It will be profitable in the long run if these factors remain consistent.
Do You Have Any Savings?
It’s wise to have some savings or liquid assets available to neutralize any unexpected expenses or short-term losses if you’re going to invest in a rental property. You will make money in the long term if you choose wisely and invest in an area that shows steady growth. But the short term is entirely unpredictable.
This doesn’t mean you shouldn’t invest, but you should expect the unexpected. You’ll put yourself in a bad position financially if you put all your money into real estate, then suddenly there’s another outbreak of COVID and you haven’t budgeted for vacancies. But if you have enough free cash to pay the carrying costs until the economy stabilizes, you’ll make it to the other side with a profitable investment.
Is There an Opportunity for a Deal?
The low-interest rates and reduced property values present a great deal of opportunity for investors. But you have to be smart to reap the benefits. Timing is a huge aspect of real estate and it’s important to proceed with caution when investing in a recession. The best time to move is when the local economy is beginning to rebound, but property values haven’t quite caught up. If you invest too early, you may get caught up in another downturn. But if you invest too late, you may miss out on a killer deal.
Time it right and you may very well walk away with a discounted property that will appreciate quite rapidly over the next decade. But be careful. The real estate market hasn’t taken as big a hit as many we’re expecting. So, if a property is being offered at a rock bottom price, it may be a dud and not a deal. There are plenty of motivated sellers out there who are eager to walk away from the responsibilities of owning a home or a rental property.
So, you can find a steal if you do the proper research and invest in an area with a strong local economy that is likely to bounce back once the virus is contained. But remember that you have to play the long game to make money in times like this and understand that the discounted price comes at a temporary cost.
Ultimately, there are always deals to be found in real estate if you know how and where to look. Investing in a recession is not as predictable as in a growing economy. But there is also the greater possibility of finding a diamond in the rough. You simply must be patient and do your research. If you pay attention and follow these tips, you’ll reap the benefits sooner than you think.