With the current economic upheaval caused by the coronavirus pandemic, right now may not seem like an ideal time to purchase any type of real estate, much less an investment property or second home. But don't rule out the idea completely. With historic low rates set by the Federal Reserve, now is a good time to consider investing in real estate. Low rates can help give you more buying power and maximize your potential for returns. After the Federal Reserve's recent rate slash, which was intended to protect the market against the economic impact of the COVID-19 virus, now may be the right time for buyers to consider an investment property. But before dialing up your Realtor there are a few items to consider.
Why Is this a Good time to Buy?
Since we are seeing the potential for an economic recession coupled with the lowest interest rates in nearly 50 years, lower home prices could be ahead, and this has attracted the attention of buyers. Investors are reassessing asset allocations in their portfolio and considering how real estate may fit into this form of asset collection. During this time, current investment home owners may decide to sell, in turn creating a good selection of inventory. This, combined with low rates, will give investors the upper hand in negotiations.
Benefits of Buying an Investment Property
Like any savvy investor, an investment property can be a valuable asset and a great way to generate passive income, and may also be beneficial by providing tax deductions and incentives that you wouldn't generate on other investments. It's always recommended that you speak with a qualified tax advisor on your particular situation, however generally speaking, you could see tax benefits that mortgages provide, as well as the IRS' treatment of your investment or vacation home, depending on how you rent it out. Additionally, purchasing an investment property is a great way to diversify your investment portfolio and protect your net worth while the market fluctuates.
Precautions to Take Before Buying
Before purchasing an investment property, buyers should prepare for the possibility of a prolonged economic shutdown. If you're buying a property that doesn't currently have tenants, it may be a while before you can find someone to rent. In order to sustain an investment property, it's important to have cash on hand for carrying costs, needed repairs and routine maintenance, in case of prolonged vacancy or delinquent payment of rents. A qualified Realtor can help you navigate the "highest and best use" of your investment property and help to determine appropriate rental rates for tenants to ensure you receive maximal return on your investment.
What's My Affordability?
You don't necessarily have to be a millionaire to invest in a property or second home. To determine if you're ready to purchase an investment property, ask yourself two questions: are you cash-flow positive and can you handle at minimum, six months without receiving rental income?
If you can honestly answer yes to these two questions, this may be the right time to buy an investment property. However, it's prudent for buyers to either have the ability to purchase with cash or if financing will be needed, to talk with a mortgage lender for pre-approval. Pre-approval will tell you how much a lender is willing to finance for the purchase of a second home. Understanding your budget and sticking to it is critical when making an investment purchase.
Note: Understanding market data is key to knowing the next steps to take when considering the purchase of an investment property. Our team of qualified Realtors have unparalleled expertise in the investment opportunities that exist in the Charleston SC real estate market. From understanding how you plan to use an investment property or second home for yourself, to evaluating market conditions, maximizing return on investment and guiding you through the importance of asset management, no more knowledgable team exists. It's precisely what we do for our own portfolio and that which we manage for our clients. Want to speak with a company who will help you navigate the real estate investment landscape and help you achieve your goals? Then come and speak to us.