Many people are speculating that now is the worst time to invest in real estate. There are heightened fears of a recession, the global credit crunch means that people are tightening their belts and the cost of living has increased substantially.
However, despite these concerns, real estate continues to be a solid investment. People will always need a place to live for a variety of reasons including the increasing demands of immigration, divorce rates, people seeking greater independence at a younger age, students needing somewhere to live close to their place of study and the high cost of getting on the property ladder. This is a great opportunity therefore to supply real estate to meet the needs of the rental market.
Real estate investing during a recession is just as easy as investing during a period of economic growth. Property prices are much lower and there tend to be a number of cheap foreclosure properties on the market. This means that there is a real opportunity to make money in real estate but the strategy during a recession should be seen as a long-term investment rather than relying on short-term “flipping” investments.
“Flipping” which means buying a property, carrying out renovations and selling it on quickly for a profit (usually within a 3 – 18 month period) was a very easy and profitable way of making money a couple of years’ ago but is a strategy which is full of holes in today’s market. Less people are buying property today and those that are buying are paying much less than the asking price and you could find that you actually lose money rather than make any profit. Real estate investing requires a long-term view (about 2 – 5 years), because any properties that you invest in now whilst prices are cheaper, will see a steady increase in their value over time in the coming months and years.
So, what are the factors you should look out for when investing in property over the long-term?
Decide your strategy
If you want to appeal to young professionals, one or two-bedroom apartments are ideal in an area close to bars and nightclubs, and to transport links to get them quickly to work. If your strategy is to provide homes to families, a 3-bedroom house with garage space, close to schools, parks and supermarkets may be ideal. Deciding your strategy beforehand will make the process of investing much easier.
Decide where to invest
Is the investment in an up-and-coming, highly desirable area? There must be accessible amenities nearby such as shops, bars, schools and supermarkets. Notice whether there is an oversupply of newly built apartments or houses in the area which are empty or taking a long time to sell or rent out.
Do your research
Learn how to value property. What are other properties selling and renting for in the area your interested in? Speak to estate agents (but don’t rely on them) to get the best possible understanding of the real estate market in the area. Do the investments you are considering add up? Research, research and research again and carry out your own due diligence in order to make sure you are investing in the right property, in the right area at the right time.
Rental Property & Equity
This is the key to real estate investing over the long-term. Rental properties can generate passive income almost immediately, although this will probably only be a small amount of profit each month. Although you can’t expect to get rich on the profits of one property, five or more investment properties all bringing in a small amount of profit each month will soon add up to a comfortable income. This profit comes in handy when it comes to maintenance repairs for each property or to cover periods when a property may be empty. The real riches comes from building equity over the long-term which you can release over time to enable you to buy additional investment properties.
Remember, this is a business
You should treat your real estate investing as a business, which means you should not get attached to the property, which is quite common, especially amongst first-time real estate investors! It’s a mistake to become too personally involved in your property. You should not consider your own personal requirements, but those of the future inhabitants.
The real estate market is full of people who are driven by greed and fear. There were people who were jumping in with both feet during the real estate boom times because they wanted to get rich quick, but they lost a great deal of money and their investments during the leaner times because they hadn’t carried out the necessary research and due diligence needed to be successful whatever the climate. Taking the long-term view in real estate investment will ensure that you are successful in periods of recession as well as during periods of growth.