If owning an investment property was on your bucket list prior to COVID-19, don’t scratch it off the list just yet. In fact, buying an investment property is still a good idea. From wealth building to tax incentives, investment properties can still offer a lot of perks. In particular, there are five reasons why you should still buy an investment property.
Low Mortgage Rates Continue
Taking advantage of historically low mortgage rates is a major incentive to buyers— and investors. While investment loans do typically have increased rates over owner-occupied homes, the investment rates are still relatively low. One of the important aspects in successful real estate investing is to minimize holding costs and keeping the monthly payment as low as possible to insure cash flow. With overall reduced interest, investors can see more cash flow and less overhead in their investment.
House-Hacking Has Grown In Popularity
Not all investment properties have to be entirely rented out to tenants. Instead, the house-hacking model offers the best of both worlds: real estate investing with the benefits of owner-occupant. As thousands of Americans are furloughed or unemployed, many are looking to reduce their living expenses— including cheaper rent. Owner-occupants are benefitting from this change by renting out spare bedrooms, guest houses, or even occupying a multi-family property and renting out the additional units. If house-hacking is a desirable option for you, there are a few things to consider:
- Know what rent you can reasonably expect from the spare bedroom/guest house/additional unit
- Make sure you can afford the property without renting out any portion
- Consult a CPA for any tax incentives or consequences from house-hacking
Vacation Rental Demand Has Increased
As most of us have been quarantined at home for months on end, the desire to break out of our four walls has grown. However, people are looking for safer alternatives than hopping on a plane to a tropical destination. Instead, many are opting for road trips and vacation homes to enjoy a change of scenery while still social distancing. Purchasing an investment property in a high-demand vacation area has long proven to be a good investment, and that still rings true today. In fact, data shows vacation areas are recovering faster than urban areas as far as vacation rental demand. As the demand surges, investments like Airbnb can still offer a lot of benefits. Airbnb investing is also a model that can be combined with the house-hacking model.
Unique Point In History
Unlike the last several years, we are in a unique point in history regarding housing. Cambron Elsey, Realtor with The Boulevard Company in Charleston, South Carolina describes this unique housing need, “We have three generations looking to buy or rent: Generation Z, Millennials, and Baby Boomers. Because of this, we have a housing shortage.” With such a demand for affordable housing—whether you’re investing to sell or investing to rent, there is a steady flow of demand from three generations! In fact, both millennials and baby boomers are looking for a “hands free lifestyle” that is found through rentals, according to CNBC. Over the next five years, over 40,000 housing units must be delivered to the market per year just to meet the demand of baby boomers; however, new supply growth hasn’t met the demand. This is a prime, often overlooked, area prime for real estate investing. One of the keys to success in real estate investing is to identify a major demand and meet that demand— meeting the “hands free” demand is one of many opportunities currently available to investors.
One of the long-term proven methods to wealth building is through real estate investing. By investing early in real estate, people can enjoy passive income, tax benefits, and appreciation in value. Real estate investing can offer cash flow now but also a payday later. According to Forbes, “Appreciation, or the rising of home prices over time, is how the majority of wealth is built in real estate.” While the real estate market may fluctuate, similar to the stock market, a long-term hold mentality shows that it consistently offers a return on the investment that many utilize for retirement.
While 2020 is proving to be a unique year on all fronts, it doesn’t mean it’s a bad time to begin (or grow!) your real estate investing career. Ask any successful real estate investor, and they’ll tell you: you make your money on the buy. Buy right, even in the midst of a pandemic, and real estate investing can be a smart choice!