Many people today have questions regarding whether or not real estate is still a good investment given our current economy. The short answer is yes. Real estate is generally considered a safer investment than other investment strategies, such as stocks. It offers both the ability to increase earnings and decrease tax burden.
Something to Think About
When an investor is looking at and evaluating a real estate investment, the median price provides information on supply and demand. Median price points that are rising too quickly are unsustainable while those that are rising too slowly exist in either depressed markets or markets that are peaking.
In the Twin Cities metro area, median prices have increased 9.8% compared to last year. In most markets, prices increase 3% year over year. Price increases of 5 - 6% are generally considered good markets for investment (Forbes). If you’re not comfortable entering the market as an investor right now because of this, watch the current market closely to see when price increases slow down.
The reasons why people have been concerned about investing in real estate this year has to do with unemployment, rent, and fear of property damage. Since unemployment is relatively high at this time, investors worry that tenants can’t afford to rent. There have also been a number of rent strikes in the U.S this year. Landlords asking for financial relief from the government, and tenants are asking for rent freezes until jobs become available and safe. No investor wants to purchase and maintain a property and have tenants that cannot afford to make their rent payments. In 2020, about 50% of people are concerned about not being able to pay rent every month, that’s up 25% since 2019.
In addition to rental investments, we have seen little traction being made this year within the affordable market. Investors looking to flip homes in the affordable range worry that there won’t be buyers available.
Along with the economic struggle strung along by the COVID-19 pandemic, we’ve also had a monumental and historic year for social justice movements. Tensions are high, and with each following event sometimes comes property damage. Some investors fear purchasing a property within city limits and having it get damaged.
Return on Investments
People will always need somewhere to live. Families grow, adult children move out, people move to the city, people move out of the city, etc. There is always an eb and flow in supply and demand within the real estate market, as in any market. There are many ways to enter the real estate market as an investor that offer more peace of mind than others.
Some people choose to purchase duplexes and live on one side while renting out the other. From there, you can renovate the side you’re living in to rent out for increased rent, supposing the improvements are legitimate and improve the property. When renting out the side you improved, move into the other side and do the same. Eventually, you would sell the property as a whole at a profit, since you improved the property while residing within.
A similar longer term option that doesn’t include functioning as a landlord would be buying an affordable home and living within it while completing improvements and then selling the property for a profit. The renovations in this situation cannot be simply cosmetic. If you are looking to sell the property for more than you bought if for, you must study which improvements will increase your ROI. This can include finishing a basement, finishing a garage, adding a half bath, etc. Make sure you understand what projects you are willing to do, if you can do them well, what projects you’ll need to outsource for labor, etc. This can be a fun way to invest in real estate and offers a lot of beneficial experience, but requires patience.
There are many different ways to enter into the real estate market as an investor. Many of which options offer a promising return on investment. You must always do your research not only on the property you’re looking to invest in, but the cost of repairs, the condition on the current market, and your own financial circumstances. If you are not positive that the investment is safe for you, it never hurts to meet with a financial or legal advisor that can give you advice. Realtors are also a good source for determining whether or not you should make an investment.
Generally, a person’s ability to successfully invest in real estate is determined by many individual factors. Work with people you trust and when you do make the decision to invest, make sure you feel comfortable.
The success of an investment in real estate comes down to educated decision making, calculated risks, and the condition of the current market. If you’d like to invest in real estate, please feel free to contact our team, we are always here to help.