Is Now A Good Time To Invest In Real Estate?
Although mortgage rates have recently risen slightly from their all-time lows, the housing market is still going strong. This means that rates are still low enough to make investing in real estate a popular consideration for many investors. But is this really a good time to be investing in property that you won't be living in? After all, there are many things to consider beyond the opportunistic aspects of the decision.
Carrying costs for an empty property meant for resale don't just include the monthly mortgage payment. They also include insurance costs, property taxes, upkeep and repair expenses. Even if you plan on renting the property before it is sold, you still need to have adequate cash reserves to pay all of these expenses because the rent you are able to charge in your area might not be enough to provide adequate resources. Finally, consider how long you may need to cover these costs. The good news? In this booming market carrying costs are not as big of a concern as the rents are predictable and the vacancy rate is the lowest we have seen in Kelowna for a very long time. This means revenues are consistently higher then your combined carrying costs.
Risk and Return
The discussion above about carrying costs gives an indication of the amount of risk you might be taking on when you invest in real estate. Conventional investing wisdom says that real estate is an investment that will grow over time, but recent years have shown that this growth may not be as straight forward as an investor might want. In real estate investment the largest risk is time. If you do not have enough set aside to cover any vacancies or other issues then you need rental income at all times. This means in a down turn when vacancy rates go up, you are at risk. If you factor that in to your plan... then you have mitigated the time risk. Real estate has been on a consistent 8 year cycle, so if the sale value drops.. just hold on to it. You wont lose money until you accept a cheque for lower then you payed. Instead you lose time. Time waiting for the cycle to come back.
This is the largest factor with time. In a hot market you can make a house liquid quickly. In a slower market you are still paying the carrying costs when you wait to convert the property to cash. The potential has to be assessed as part of your decision.
Your personal investing goals and timeline will have a lot of bearing on whether or not real estate is a good investment for you right now. If you are within a few years of retirement, investing in real estate could actually push your retirement back until a later date, especially if you tap into your retirement savings for the down payment. If you are trying to get ahead before retirement, it could be a great vessel. The benefit of real estate investing is you have other people building equity for you. This concept of building over and above your own labour is a core motivation of real estate investment.
The Bottom Line
Often, a "good time to buy" for one investor may not be for another. Sure, opportunities abound, but if it isn't actually a good time for you to invest then the opportunities that you see will not be something that you can trust to provide an opportunity to you.
however, with the right planning and assessment you can avoid the pitfalls and have a serious money multiplier at your finger tips. In Kelowna's market you have the opportunity to build equity and extra cash each month given the high levels of rent. This in addition to increases in property value can really take you to the next level!
Ask me more if you want to learn how to decide what is right for you!