The 2020 real estate investor is lucky. He/she has so many options when it comes to investing in real estate. From investing in rental properties to participating in real estate crowdfunding, there are so many lucrative paths one can take this year.
But what is the best way to invest in real estate right now?
The answer is simply rental property.
Why is rental property a good investment in the US housing market 2020? Well, there are actually 6 reasons why.
And I’m sure they will convince you to get started investing in real estate rentals this year. So I went ahead and included a quick “how to invest in rental property” guide at the end of this blog.
Why Rental Properties Are the Best Way to Invest in Real Estate in 2020
Before you dive into the following reasons why buying rental property is the best way to invest in real estate right now, note that I am talking about residential income property. Residential real estate is typically the best sector to start your career in.
Mortgage Rates Are Low Right Now and Will Likely Remain Low This Year
In 2019, the Federal Reserve cut interest rates a few times. At the beginning of 2020, the committee made the call to keep interest rates steady. While these interest rates are not the same ones you pay when you take on an investment property mortgage, the two are related. When the Fed interest rate is cut, typically mortgage rates drop alongside it.
In January 2020, Freddie Mac reported that the average 30-year mortgage rate actually hit a three-month low, reaching 3.60%. This is down from 4.46% at the same time last year. The mortgage rate forecast for 2020 places the average at 3.70%.
Even with forecasts predicting a low mortgage rate, note that it could go higher or lower throughout the year. That is part of the reason why the best way to invest in real estate right now is rental properties. Buy a rental property and lock in a low mortgage rate now. Although investment property mortgage rates are higher than those for a primary residence (0.5-0.75% higher), you can still benefit from the current interest rates.
You Don’t Need a Ton of Money to Buy Rental Property
Despite the appeal of low rates on a rental property mortgage, a lot of people still hold onto the idea that real estate investing is expensive. And sure, if you’re shopping in the luxury sector of the New York real estate market or even the Miami real estate market, you won’t be able to afford a front porch let alone an entire investment property. But there are affordable housing markets all over the US real estate market in 2020. Affordable and profitable. We went ahead and made a list of them for you: Invest in the Cheapest Housing Markets in 2020.
But even if you have a city in mind, you can still find affordable real estate investments. I’ve already put together a guide for you on how to do just that: 2 New Ways to Find Cheap Investment Property for Sale. Go ahead and check that out if you feel like your budget is not enough to take advantage of the best way to invest in real estate in 2020.
And don’t forget, you can always get creative and explore other ways to invest in real estate with little money like partnerships, house hacking, buying distressed properties, seller financing, and even lease options. Don’t let the amount of money in your pocket keep you away from the best real estate investments out there.
Sellers Are Slowly Losing Their Advantage in the US Housing Market
The US housing market has been a seller’s market for years. And many major markets across the nation have seen sellers making a killing and buyers sitting on the sidelines, waiting for the right time to make a move.
Related: Will the 2020 US Housing Market Be a Seller’s Market or a Buyer’s Market?
But in 2020, the tides are shifting. This was felt at the end of 2019 with the drop in mortgage rates and real estate bidding wars. Keep in mind trends are local and you will have to do more research to find out whether your location of choice for investment is a seller’s market or a buyer’s market.
In addition, price growth has slowed down. This allows for some breathing room for buyers.
And all of these real estate market trends really spell out why buying a rental property is the best way to invest in real estate. With rental properties, you will be implementing a buy and hold real estate investment strategy. Most experts recommend holding onto an investment property for at least 10 years. If you were, say, flipping a house this year, you may have some trouble if sellers are really losing their power in the housing market of your choice.
First-Time Real Estate Investors Don’t Have to Enter the Market Alone
The big real estate market can be intimidating. Sometimes, we need someone (or something) to rely on as we make major moves. While the option of hiring a real estate agent to help you buy rental property has always existed, in 2020, you have another option- using real estate investment tools.
With a reliable tool by your side, you will be able to:
- Start your investment property search in the right market
- Easily find rental property for sale
- Perform rental property analysis
And essentially invest in the best rental properties. The real estate investment tool to use? That’s Mashvisor. Skip to the “how-to” section of the blog to learn more.
Your New Rental Property Will Appreciate in 2020 and Beyond
While price growth has slowed down some in different real estate markets, investment properties will still continue to increase in value. Zillow puts the average real estate appreciation rate of property in the US housing market 2020 at 2.8%.
And as mentioned, with rental properties, you will be holding onto them for years to come. This way, you can really benefit from real estate appreciation. In the short-term, you’ll make money renting out the property and generating positive cash flow and when the time comes to sell, you’ll make a good return on investment. Check out the Top Cities for Real Estate Appreciation as it does depend on location.
You Don’t Have to Worry About Becoming a Landlord in 2020
The best way to invest money is one that gives you the option to earn money passively. And that’s why buying rental property is the best way to invest in real estate. You don’t have to become a landlord in 2020. The property management industry is going strong and will continue to grow this year. A simple Google search and you will find a few different property management companies waiting to help you out.
Of course, it comes at a cost. But follow my how-to guide for buying rental property, and you’ll have the best property investments that produce enough cash flow. You’ll be able to pay your property manager and put some money in your pocket every month. And hiring a good property manager can lead to increased occupancy rates and cash flow. You really will be earning money while you sleep.
How to Invest in Real Estate in 2020: 6 Steps to Buying Rental Property
Ready to start investing in real estate rentals? You have 6 good reasons to go out and buy a rental property today. But to make sure you find success, follow these 6 steps.
1. Learn How to Invest in Real Estate
You may have a general idea of what goes into house hunting and buying a rental property. But if you really want to look back at 2020 and feel like you took a major step to secure your financial freedom rather than be full of regret, start by learning.
Read books on real estate investing, sign up for that webinar, listen to podcasts, follow a daily real estate blog, join investor groups online, and talk to a real estate agent.
And while you shouldn’t spend all of 2020 trying to memorize how to buy rental property, do give it the time it needs. Once you feel like you are armed with a good working knowledge of the industry, move on to step 2.
2. Get Pre-Approved
Make sure your finances are in order. Have you saved up for a down payment for rental property? Do you have cash reserves?
If you’re going the traditional real estate financing route, then speak to a mortgage lender. Apply for pre-approval. This will help you know how much you’ll be able to afford.
3. Find a Good City to Start Your Search
The best way to invest in real estate is not always buying a rental property close to home. Long-distance real estate investing may prove to be more profitable in the long run in terms of positive cash flow and appreciation.
Check out real estate market reports of different cities across the US housing market. You can also check out our lists of the best places buy rental property:
10 Best Places to Invest in Real Estate in 2020
10 Best Places for Buying a Vacation Home in 2020
4. Pick a Profitable Neighborhood
This is where one of Mashvisor’s real estate investment tools comes in: the Heatmap Analysis Tool.
Mashvisor’s Heatmap Analysis Tool
Once you have a city selected, use this tool to quickly and easily perform a neighborhood analysis. Using metrics like listing price, rental income, cash on cash return, and Airbnb occupancy rate, you’ll be able to find the top neighborhood with investment properties for sale in the market of your choice.
5. Perform Rental Property Analysis
Not every rental property for sale in a good neighborhood will make for the best real estate investment. To make sure you find a good one, perform a rental property analysis. Do so confidently with Mashvisor’s Rental Property Calculator. This tool allows you to analyze rental property using data on rental income, expenses, cash flow, cap rate, cash on cash return, and occupancy rate. You’ll also get real estate comps and an investment payback balance forecast as well.
6. Get a Home Inspection
Once you find the best rental property, be sure to have a professional home inspection done. This is important before making an offer. You may have used a rental property calculator to look at the numbers, but you still need to know if the roof needs repairs or if you’ll be dealing with other issues once you buy it.
This was just a quick guide on how to buy a rental property. For more, read: 10 Steps to Buying Your First Rental Property.
Get Started Now
While there are plenty of good ways, buying rental property is the best way to invest in real estate. Start your search for a rental property for sale right now using Mashvisor’s tools.
