Recent developments have plunged the nation into record-low interest rates. With the Federal Reserve cutting back on rates to encourage spending, many home buyers are looking to purchase—despite the economic uncertainty.
So, to buy or not to buy? That is the question of a pandemic real estate market. In many instances, low mortgage interest rates can allow buyers to lock into great deals. In others, the spiraling costs of competitive housing markets negate the potential savings.
For any real estate investor, factors like this will guide your investment path, informing you if a deal in the pandemic market is really worth it. If you’re determining whether now is a good time for your own purchase, see the topics below for further consideration.
Intention for the Property
When making a real estate investment decision for any market, it is important to think about your intentions for the property. Will you be purchasing to occupy or to rent it out for an income opportunity? The answer to this question can affect many elements of the investment process, so a clear decision from the start is advisable.
If you plan to occupy the property, the location will be especially important. You can rent a home from pretty much anywhere, but the location of your family home will influence your whole life. You will want to consider how the house will grow and adjust with your family, making the low-interest rates worth it through long-term investment.
If you are looking to rent out a property, your focus will be on your return on investment (ROI). Rental properties typically need a higher down payment upfront. This will affect how long it takes before you are generating a net income from your rental. It takes calculating and understanding the current market in order to guarantee an investment that puts in the black in a short amount of time.
Intended TIME-FRAME of Ownership
Whether the current low-interest rates mean a worthwhile investment opportunity or not come down to how long you plan to hang on to the property. For these rates to pay off, long-term investment is better for both homeowners occupying a home themselves or those renting out to others.
If you don’t plan to stay in one place too long, the low-interest rates of the current market won’t end up doing you too much good. In some markets, home prices are rising because the low-interest rates encourage a competitive housing market. This could translate to a loss if you end up selling your property in a short time.
For a worthwhile investment decision as an occupier, you want a home that can meet the needs of you and your family over time. Consider buying a home that might be bigger than what you currently need if you want a home to grow with your family.
If you’re renting out, the time-frame you hold onto your investment dictates your ROI. Calculate an effective investment schedule to determine how long it will take to meet your goals in the chosen market before investing.
Cost to Mortgage Ratio
Once again dependent on time-frame and intention for the property, low mortgage rates may not pay off depending on the cost of the investment. With real estate prices rising in some markets, the trade-off for a good interest rate might not in every case equal savings.
For any investor, thorough calculations should be made to understand when a deal is actually a good deal. Perhaps you need to spend more money in order to lock down your dream home. At the same time, rising prices might fully negate the savings you could have had from a low interest rate.
Every situation is dependent upon the market in question. Examine how home prices have risen in your locale to determine if costs have risen, and if waiting for a more temperate market might actually be more lucrative.
Right now, average mortgage rates are trending at under 3%, making for valuable home prices in many instances. However, if the costs just don’t add up to a bargain in your situation, these low rates don’t serve you much.
Your Situation
All told, whether or not investing in real estate as interest rates hit record-lows is right for you depends on your situation. Factors like your intent for the property, investment schedule, and cost-to-mortgage ratio will compel your decision one way or another.
In spite of the pandemic, real estate markets in many areas are bustling and growing. For many investors, this means added value and great deals. Always consult a financial professional before making any kind of real estate investment decision for yourself. With today’s low interest rates, now might be the time.
For more on real estate investment and property management, contact 208.properties today.