Is This The Right Time to Invest in Real Estate?

Investment real estate is different than buying a home! It does not have (& should not have) emotions involved, it is all about numbers.

With that said, it is always a right time to invest in real estate if your numbers make sense. Keep these things in mind (& there are many more to consider) when buying an investment property.
1) Are you buying for monthly income or future growth/appreciation? Higher monthly return will normally mean a slow appreciation and vice versa.
2) Is the rate of return what you are looking for? Word of caution here - higher the rate of return, more the chances that you are taking a risk. And what is the right rate of return? It is different for everyone. Some people are happy with 2%, other want 15%.
3) Will you be able to carry the property for sometime in case of vacancy? Multiple tenants in the property reduce that risk.
4) Are there any major expenses that need to be planned? This can be a back breaker if unknown major expenses pop up. Make sure the price reflects an adjustment if it is obvious that repairs will be needed soon.

So you ask, what is better, income producing or potential growth property? Again, that depends on your needs and capacity. Example - If a $100,000 non income producing property has a potential of becoming $200,000 in 5 years, should you buy it? YES, because it offers a huge rate of return when you sell it but NO if you can't afford to carry the property for 5 years without income to pay for the mortgage and expenses.

And you ask, should I invest if it is giving me 4% return? And the answer again is, it depends. If your money is currently earning you 1%, then 4% looks great. If you are getting 7% already, then 4% is no good. Unless ofcourse, this property has future appreciation possibility and will result in higher return. Example - you buy a property for 100K, and put 20% down (20K). After all expenses, you get 4% per year ($800). If you would have left in your current 7% a/c, you would have gotten, $1400/yr. So you lose $600/yr (3K in 5 years). But in 5 years, you sell this property for $150K. Which means a 50K profit on 20K investment (thereby making it a 30% per year return apart from 4% you already got, minus the 3K). See how this 4% was many times better than the current 7%? Please keep in mind, these numbers are there to explain simply - we have not considered compounding, we have not considered closing costs, we have not considered depreciation benefits. So there is a lot more to consider but you get the idea!

There is one other advantage of investing in real estate and a huge one - it's called leveraging (just be careful and don't over do it, keep enough reserves for rainy days).

Wishing you the very best with the purchase of your investment property. Please fell free to call if you have further questions or if you would like us to assist you with an investment in real estate.

Sanjeev Aneja, CRS, Broker/Owner
On Track Realty
www.ontrackrealty.com
732.494.2211