When you search on Google using the phrase ‘is real estate a good investment’, you will get over 800 million search results. This means that people all over the world want to know whether investing in real estate is a good idea in 2021 or not. And with all the uncertainty caused by the Coronavirus pandemic, real estate investors are cautious about venturing into the housing market. Memories of the 2008 housing market crash are still very fresh in many minds.
If you are one of the people looking for answers on how to make money in real estate, you have come to the right place. This post will explain why you should buy a rental property and how to get into real estate in 2021.
To answer the question ‘Is real estate a good investment in 2021?’, we will look at the advantages of real estate investing for beginners. Later, we shall explore the steps to follow when investing in real estate.
Why is real estate a good investment in 2021?
Here are some reasons why you should invest in real estate in 2021:
- Low interest rates – When it comes to mortgage interest rates, there has never been a better time to become a real estate investor. In an effort to mitigate the pandemic-induced recession, the Federal Reserve lowered interest rates to near zero levels. This has made owning investment property a possibility for many Americans.
- Impending foreclosures – In 2020, the US federal government issued a foreclosure moratorium and an eviction ban. These measures meant to protect tenants and homeowners facing financial hardship due to COVID-19. Though the Biden administration extended this moratorium to June 30th, 2021, this forbearance will eventually end. When that happens, many homes will end up being foreclosed due to non-payment of mortgage. This will in turn present a great opportunity for investors looking for cheap real estate.
- Rising home prices – According to Zillow, the average price of a home in the US is $272,446. Despite the ongoing pandemic, it is predicted that home prices will increase by 11.4% in the next year. Therefore, buying rental property today assures you of real estate appreciation over time.
- Housing shortage – A recent report by FreddieMac revealed that the US housing market 2021 is suffering from a serious shortage. It is estimated that 2.5 million extra housing units will be required to fill this shortage. When real estate demand exceeds supply, prices as well as rents go up. With a rental property investment, you can make a good return on investment
- Tax advantages – Landlords are allowed to make tax deductions such as insurance, property tax, HOA fees, interest, and homeowners insurance. This helps them push up the rate of return on a rental property.
- Building equity – As you pay off your mortgage, you are building equity in your property. With sufficient equity, you can take a home equity loan and buy an additional income property. This is a great strategy for building your portfolio.
How to invest in real estate
Once you’ve answered the question “Is real estate a good investment in 2021?“, follow these steps for a smooth and productive investment process:
Decide what you want to purchase and where
When it comes to investment property types, you have many options to choose from. This includes condos, single family homes, apartments, and multi family homes. Do your research and decide what property type fits your criteria. At the same time, consider the location where you would like to invest. Conduct a neighborhood research and look at things like crime rate, walkability, amenities, and property taxes. You can also use a tool like Mashvisor’s real estate heatmap to find the best performing neighborhoods. You can narrow down your search using filters like listing price, rental income, cash on cash return, and Airbnb occupancy rate.
Unless you’re planning to pay cash for an income property, you will need some kind of financing. And it is advisable to get preapproved for a loan before you start hunting for a home. Financing options to consider include a conventional mortgage loan, asset-based loans, home equity loans, 401k loans, hard money lenders, and private money lenders. Most of these lenders will require you to have a good credit score and a low debt-to-income ratio.
Find the best investment property
Once the financing is sorted out, you can start looking for a rental property for sale. You could check out MLS listings (if you have a real estate license or work with an agent), read local newspapers, visit real estate auctions, check real estate websites, or even drive around neighborhoods. Better still, you can find the best investments on the Mashvisor real estate investment software platform. This includes MLS listings as well as foreclosures, short sales, auctioned homes, tenant-occupied rentals, and some off market properties listed by other users. You can narrow down your search using filters like location, budget, property type, rental income, rental strategy, and expected return on investment.
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Conduct an investment property analysis
It is not enough to find good investments that fit your criteria. Before investing in rental properties, you need to analyze their profitability potential. With Mashvisor’s rental property calculator, you can determine whether or not a home will be a viable investment. This tool will calculate important metrics such as rental income, occupancy rate, rental expenses, cash flow, cash on cash return, and cap rate.
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Conduct a home inspection
Before you buy property, it is important to have it checked by a professional home inspector. Areas inspected will include the foundation, roof, plumbing, HVAC, fire safety, and electrical wiring. If the inspection reveals serious problems, renegotiate the price or ask the seller to make repairs first.
Close the deal
Once everything is in order, you can close on the home. You might need to hire an attorney to help you make sense of all the legal paperwork. Keep in mind that you will incur additional costs like appraisal fees, administrative fees, processing fees, application review fees, and settlement fees.
Is real estate a good investment? Considering all the factors mentioned above, real estate is a great way to make money and build wealth in 2021. If you do your research and implement a good real estate investment strategy, you will succeed. Don’t forget to use the right real estate investment tools to find the best cash flow investments.
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