Is Real Estate the Right Investment For You?
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Over the last few years, it's been assumed that we’ll enter a recession, but the sudden impact of COVID-19 has now pushed experts into believing this is going to be one of the worst of our time and could even lead to a depression.
With this in mind, many people are wondering what to do to secure their future, especially if they’ve been saving or investing in stocks and shares.
The challenges of real estate investing during a recession
According to some of the wealthiest people on earth, real estate is how 90% of millionaires created their wealth.
The truth is - a recession isn’t great news for homeowners if they hit financial difficulties and can’t afford to meet their mortgage payments.
During a recession, house prices plummet, and we see some people needing to access their savings quickly - this means that someone with two homes may let one go to release the cash they have or lower their outgoings.
We also see some landlords having to renegotiate rent with tenants, as some tenants become unemployed and lose their jobs and struggle to keep up with rent.
This means that payment for the mortgage rests with you, the homeowner, which can lead to a dip in savings, leading to financial constraints in a difficult time.
Added to this - there’s the challenge of not knowing how long this current recession is going to last, how much money we will need to have saves to survive it and how it will change e the global economy.
What makes real estate an attractive investment during a recession?
Owning a property means you’re buying an asset which will always hold value.
Right now, most countries around the world are lowering interest rates, which means it's cheaper to borrow money from the banks to buy said real estate.
Yes, the value of property will fluctuate, but it’s often more predictable than the stock market.
It’s also a slower change than stocks and shares. With stock prices, you can see rises happen overnight, you can also see share prices dramatically fall overnight.
The real estate market tends to rise slower and fall slowly. After a recession, when everyone regains confidence, house prices start to increase in value.
How to start investing in real estate
You don’t have to start with a significant investment.
Something as simple as a small studio flat could be the start of your portfolio. Bought at the right time and the right price, your studio could increase in price and you could refinance it and use that money to buy the next property — your first property could help to fund your next property and so on.
Real estate investment isn’t about a quick return, although there are ways you can make a faster return, particularly if you are a wholesale real estate investor.
This means you agree to a contract with the buyer at a reduced cost, then sell to another real estate investor at a higher margin.
You make the profit in between these prices. You may not make a tremendous amount of money, but it can be a quick return on your investment.
Most real estate investment is a long term game.
Investing in residential properties is a great idea. You can rent your property out to tenants over a 12 month period and collect rent every month and that rent can pay for the mortgage loan, rates, taxes etc.
Not only is the property price increasing, but you’re also making an income each month, and your property is paying for itself.
Your aim should be to buy homes which can be upscaled, renovated and even converted into multi families, so you can increase your rental income.
Real estate isn’t vulnerable to short term fluctuations, and it consistently increases in value over time.
This makes it a better performing investment than most other options.
There are tax benefits too for properties within your investment portfolio.
People often say that it is always a good time to buy real estate because you end up with a tangible, usable asset.
Someone somewhere will always need a home.
How to expand your property portfolio
You can also expand your portfolio and look for property for sale abroad.
This could be rented out as a holiday home/ AirBnB and give you a return on your investment while also supplying you with free accommodation if you want to go on holiday.
With the money you make on year-round holiday lets, you may find that your flights and other expenses are covered - and maybe you can use that money to travel.
Real estate is an asset that you can use as leverage.
You also don’t need to use a lot of cash when buying. You can dip into the power of your bank to fund your investment and put down as little as 10% of the value of the property.
This could mean you can buy ten properties instead of one, using the bank to help your investments grow.
In the time of a recession, bank rates tend to be low when it comes to lending. So you might find that the rental on your property covers far more than the payments to the bank! Just make sure you vet your tenants beforehand.
The risk in real estate comes if you make mistakes such as buying when the market is high or your tenant defaults on rent for several months in a row and you don’t have savings to cover your mortgage.
Also, if you’re forced to sell your property at the wrong time or you took too much equity and ended up with no profit margin.
You need to hold on to your investments to see a significant appreciation.
So make sure you can manage all of the variables that crop up.
Find a competent financial advisor, accountant and mortgage originator to make sure you’re ahead of the game and make sure you are in touch with other real estate investors as well.
Your options are better with real estate investment too- if you bought a house that you were hoping to renovate and then sell quickly for a profit, then discover the market has started to dip, you can rent it out.
It also works the other way. Buying a rental which suddenly appreciates could lead you to sell it and make a more significant profit.
There are so many ways you can organically change your investment depending on the financial situations that crop up.
So what are your thoughts and fears?
Do you feel like real estate investing is for you?
