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As a real estate investor and trainer, I am often asked if it is worth getting into real estate right now. A lot of people expect a crash at some point and think the market is in a bubble. As a result, they are worried about buying a first (or another) rental property, and that it might be better to wait on the sidelines for a chance to buy at much higher prices. low.
I agree that a real estate crash will happen, but I strongly disagree with waiting for it to happen.
If you don’t buy now, you won’t be able to buy later
If you don’t currently own any property, it will be much more difficult to buy during a recession. That’s because lenders typically tighten lending criteria during tough economic times – will be more likely to lend to existing homeowners with a great track record rather than someone new to the game. That’s not to say that it will be impossible to buy, but you will be in a much better position as an existing owner in good standing.
If you already own a property, owning more can potentially open you up to bigger business down the road. The more you demonstrate your ability to manage real estate and make repayments, the greater the potential for opportunity. Of course, the key is to buy at the right price; having assets that you cannot make payments on, or assets that lose value significantly during a recession, will hurt rather than help.
Related: The 4 advantages of owning a rental property as a business
Buy for cash flow, not for capital appreciation
While house prices fall during a recession, rents tend to remain stable. Indeed, as people downsize, landlords become tenants. Therefore, it is important to buy a property that has good cash flow and to view capital appreciation as a bonus. If this investment pays off and generates a good profit, you can hold it for as long as the recession lasts and you won’t be tempted to sell because you will get passive income.
In a real estate bubble or boom, it can be tempting to buy properties that are rising in value quickly, even if the cash flow is not great. It’s a huge bet. If the market moves against you, the result could be negative equity and possibly having to sell at a loss to more savvy investors who have decided to play the long game. It is essential to avoid getting drawn into the FOMO syndrome. (fear of failing), and focusing on formulas rather than feelings.
Related: 5 incredible tips to turn real estate into a fortune
Each region is its own economy
Just because we are in a real estate boom does not mean that all sectors of the market are affected. Some have hit rock bottom, while others are unrealistically overvalued. Finding areas where prices have bottomed out and are now recovering – due to factors such as the relocation of new employers to the area or government investment in regeneration – is the critical factor. When you find such an area, learn all you can about it, especially properties with good cash flow potential. During a recession, some regions will be hit harder than others; your job is to find those with good fundamentals that are undervalued in today’s market. When a crash occurs, it will help protect a local market from the worst effects.
So, is it time to buy now or to wait? This decision will be based on a multitude of factors related to your personal finances and your risk appetite. I can’t give you financial advice and I don’t know your situation, but there are opportunities. I am doing well in today’s market, as are my students. I’ve been through a big crash before too, and I know when that happens again the cash flow will keep me in the dark. At every stage of an economic cycle, there are huge opportunities; you just have to look for it.