Real estate business cycles follow the country’s economic trends. It is not always possible to predict precisely what the market will do in the coming year, month or day but the seven tips below will give you some ideas to consider as you venture into the real estate market in 2020.
Home Price Trends
Home prices rose by a small percentage point in April of 2020, just .6%, but by May growth was at 3%. The sluggishness of the market in April could certainly be construed as an indication of the effect of coronavirus. According to a recent Forbes article written by Julien Leclair-Dionne, care should be taken to consider how prepared you are as a real estate investor for any continued effects of COVID-19 on the ability of tenants to pay rent.
Before You Jump
After the pandemic is contained there could be a surge in the number of houses for sale. People who had their moves put on hold because of issues surrounding coronavirus will be anxious to sell. This may add to housing supply but Leclair-Dionne wonders if there will be buyers. Some would-be buyers may have had to use their down payment money for day-to-day necessities if they were furloughed or fired during coronavirus. In the case of high supply and lower demand, a buyer would have more power to negotiate the price.
Save and Prepare
Though you may be financially ready to begin investing in real estate, this is a good time to re-check the numbers you have calculated. Take into consideration how you will manage if your tenants leave and you are unable to re-rent for several months. A reserve fund is more essential now than ever. Make an appointment with a mortgage broker to find out what you can really afford and get pre-approval. Find out if an agreed-upon mortgage rate will be the same six months from now. One method some investors use is to move into an affordable apartment to save money. When the time is right they can move into the investment property as owner occupied when they are buying it and stay for the first year to get a lower rate and less down payment. Then after move back into inexpensive housing save money and do it again.
Recognize Your Budget
Ideally, you will have 20% of the asking price to use as a down payment; if you have less than 15% and you may want to re-evaluate whether you are ready to enter this market. Investment properties should always be purchased with fixed mortgages, either a 15 year or a 30 year, dependent partly on your age. Develop a strategy for short- and long-term investment goals.
Also, consider the neighborhoods in which you are looking for properties. Hot spots, for example, like Chicago’s Lincoln Park or New York’s West Village, might prove too expensive after a bit of external research. Keep your budget in mind during your search and understand your limitations.
There is an adage that states one should never buy the best house on the block, nor the worst, and this has not changed in 2020. Buying the worst house with the expectation that you will turn it into a high-end rental may not even be possible. Will you be doing the demo and re-construction or paying a contractor? Is the building worthy of repair or should it simply be torn down? If you have a solid plan and are financially able to begin work on the building–knowing that hidden problems occur–then go for it. If not, wait for a building that is in more manageable shape.
Where Should I Buy?
Try to invest in a market that will see a fast rebound and potentially add more jobs. More jobs mean a larger population will gravitate to the area you select. Study the demographics of the geographical area you are interested in and then scout out surrounding areas. Do not limit yourself to a specific area; be open to alternate locations. This may not be where you want to move your family to, but it could be the perfect location for an investment property. Check the crime statistics, school system, shopping, and entertainment features of a neighborhood before you dismiss it.
The real estate market lends itself to highly competitive bargaining. If you find yourself in a bidding war with another investor be mindful of your budget. Paying much more than you budgeted for will destroy your profit margin and that defeats the purpose of your investment.