Why Now Is The Best Time To Invest In Real Estate

With rising mortgage rates some experts claim why now is the best time to invest in real estate.

Back in 2020 and 2021 record-low mortgage rates created a good time to invest in real estate. Yet, currently, rates are soaring.

It depends if you are investing to occupy or renting it. Bankrate suggests occupiers remain for at least eight years to wait for the house to appreciate enough to offset rising mortgage rates.

Yet, if you want to buy to rent it out you may find reasons to buy now.

KEY TAKEAWAYS

Find out why now is the best time to invest in real estate.
Home prices are falling nationwide.
Before investing figure out how much you can afford to buy.
Do your due diligence on prospective rentals to see how much the rental will generate.
How will mortgage rates affect my investments if they keep rising?
Discover what other factors rental investors should consider.

Here are Reasons Why Now Is The Best Time To Invest In Real Estate

Home Prices Are Falling Nationwide

Back in 2021 and early 2022, home prices soared into a seller’s market. That changed later in 2022 when mortgage rates jumped higher than in many years. The law of supply and demand affects home sellers unable to sell unless they drop their prices.

How far will home prices fall in 2023?

We recently answered this question. Read our article: “What Will Happen With The Real Estate Market In 2023?”

Yet, before buying properties you need to get answers to important questions.

How Much Can You Afford?

Unless you have all cash, you must obtain a loan to buy a rental house. Since you will not occupy, your interest rates and down payment are higher than an owner-occupier. Expect to pay from 25% to 30% down payment.

Tip: Bankrate offers a Free online calculator to help you determine how much house you can afford. Here is what their Free calculator includes:

The day’s mortgage rate is based on the Zip Code, property value, loan amount, loan term, and your credit score;
Your gross monthly income (wages, alimony received, investments, other);
New home down payment, interest rate, loan term, and homeowner’s insurance;
Monthly debts (car and credit card payments, alimony paid, other debts); and
Then it calculates.

How Much Will The Rental Generate?

Bankrate also suggests if the house can generate enough money it’s worth investing. However, you must understand the rental market and the maintenance expenses to expect a minimum profit.

One factor is the unemployment rate hedging your bet on whether your tenants will be able to pay the rent. Avoid high unemployment areas.

Will Mortgage Rates Rise Again?

The Federal Reserve (Fed) continues to fight inflation by raising interest rates to reduce consumer debt. While mortgage rates are not directly affected by rising bank loan interest rates, there’s a correlation. Investopedia explains this in its article “The Most Important Factors Affecting Mortgage Rates”.

Given that rates rise and fall throughout history no one knows for sure which way they will go into 2023.

If rates will rise it makes sense to buy now while rates are low. Yet, if the Fed goes too far fighting inflation the economy may face a recession where mortgage rates will fall. Then, it’s better to prepare to refinance when rates fall.

That’s why going with a “no-fee mortgage” which is a no-origination fee mortgage makes sense. An origination fee charged by most lenders covers the costs for processing and underwriting the loan. Yet, some lenders don’t charge this fee. They can discount or waive it. View Bankrate’s guide to the best no-origination fee lenders in 2022.

Focus on the Long-Term

Unless you intend to buy & flip or do a BRRRR, it’s safer now to hold on to your property investments long-term.

However, if you think there is a market, learn about buying & flipping houses and the BRRRR method of real estate investments:

As the old saying goes: “Buy low and sell high”. With home prices expected to keep falling, it makes sense to buy when prices are low. Then, hold on to them and either make a sufficient profit renting long-term or selling when prices increase.

Tip: If the right investment opportunity comes your way buy it if your market research predicts a long-term appreciation and rental profits.

Know Your Financial Ability to Make Payments

You need a solid financial position to make large real estate investments. The market research mentioned above should give you comfort in buying houses and renting them out to tenants who pay promptly and protect your property.

Security Rules: Having job security and enough put aside to buy a home, maintaining and repairing it without depending on rent puts you in a solid financial situation.

Watch Out: It’s the ones who put all their money into buying, fixing up, and depending on good renters who are financially insecure. One bad tenant not paying promptly or destroying your property can ruin you. That’s why you should read these articles:

One Expert Predicts 2023 Real Estate Investing to Rise

Motley Fool in December 2022 predicted, “2023 Could Be an Explosive Year for Real Estate Investing”. They predicted that home prices dropping gives investors “more affordable investment opportunities”;

Higher interest rates will cause less competition for buying houses; and
2023 could be ripe for real estate investment opportunities.

Yet, Motley Fool did caution about rising interest rates as they impact mortgage rates while not determining them. Higher monthly mortgage payments will eat into cash flow.

They warn that “cash flow and risk mitigation” is the key to focus on. They also recommend long-term rather than short-term investments.

Motley Fool in a separate December article titled “Is Now a Good Time to Buy Rental Property?” focused on rental properties. They recommend buying rental properties now. Why? Because of these reasons:

If you have the cash, buy now;
Prices are going down as desperate sellers must sell;
Less competition from other buyers worried about rising mortgage rates;
Greater negotiation power to get more concessions from desperate sellers;
The sales prices falling will offset the smaller rising monthly mortgage payments; and
Ensure the rent generates more than the expenses.

Got Questions?

What Other Factors Should Rental Investors Consider?

Besides lower house prices and higher monthly mortgage payments, what else should you consider as a rental investor?

Big Block Realty has published several recent posts about these factors.

The most relevant recent post is titled: “Should You Buy Rental Properties Now Or Wait?” It’s worth viewing because we explained these important facts:

Find out how rental property investing protects you from inflation.
Rental investments offer tax benefits like business deductions and depreciation.
Learn how to Boost Your Depreciation over your first years.
Use a Cost Segregation Study to accelerate your depreciation for added tax benefits.
Find out how real estate appreciation during inflation increases your equity tax-free until you sell.
See how low fixed-rate long-term debt on rentals appreciating during inflation benefits you.
Learn how to defer your capital gain tax forever when using an IRS 1031 Tax-Deferred Exchange.
See how your heirs benefit financially when inheriting your tax exchange properties.

Tip: Every one of these facts affects rental investors’ profits and taxes. How real estate protects you from inflation and the many tax benefits along with 1031 Tax-Deferred Exchanges permanently eliminating capital gains tax are worth learning.

Learn More: Besides saving on taxes, we published other recent posts explaining what is really going on with rising interest rates, inflation, the Fed combating inflation, and falling home prices in 2023. Here are links to them:

Why Now Is The Best Time To Invest In Real Estate – Conclusion

Why now is the best time to invest in real estate depends on these things:

How much you can afford;
How much will the rental generate?
Will mortgage rates rise again?
Focus on the long-term and not the short-term; and
Know your financial ability to make payments.

Know that home prices are falling nationwide. Motley Fool in December 2022 predicts that 2023 will be an explosive year for real estate investing.

Several of our recent Big Block Realty blog posts are worth reading. That’s because they explain how current events affect:

Rental investors’ profits and taxes;
How real estate protects you from inflation;
The many tax benefits along with 1031 Tax-Deferred Exchanges permanently eliminate capital gains tax; and
What is really going on with rising interest rates, inflation, the Fed combating inflation, and falling home prices in 2023?

Thinking of Investing in San Diego County?

Big Block Realty provides experienced Realtors to help you find good rental investment deals in San Diego County.

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Big Block Realty was recognized in 2022 as the Best Brokerage in San Diego for four straight years (2018 – 2021) by the LocalBest.com site.

Contact us today to find out more about investing in San Diego real estate as home sales prices keep falling.

Steven Rich, MBA – Guest Blogger

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Steven Rich, MBA

Steven Rich, MBA has been involved in the real estate industry for over 30 years. As an investor, real estate agent, associate editor of a real estate magazine, a real estate marketing expert, a Wikipedia real estate article author, and as a writer.