The rental market continues to be an excellent opportunity for investors because rental properties offer awesome ROI but the reality is that many investors will wait to buy rental properties until the market crashes, instead of buying now.
Shouuld you buy a rental property now, or wait until later? In this article we answer this question and offer you insight into when you should buy a rental property.
Buy for cash flow, not capital appreciation
While property prices go down in a recession, rent tends to remain stable. This is because, as people downsize, property owners become renters. Therefore, it is important to buy property that has good cash flow and view capital appreciation as a bonus. If that investment pays for itself and nets a nice profit on top, you can hold it for as long as any recession lasts and won’t be tempted to sell, because you will be getting passive income.
In a bubble or property boom, it can be tempting to buy properties that are going up in value quickly, even if the cash flow isn’t great. This is a huge gamble. If the market moves against you, the result could be negative equity, and possibly needing to sell at a loss to savvier investors who decided to play the long game. It is vital to avoid getting caught up in the FOMO (fear of missing out) syndrome, and to focus on formulas rather than feelings.
Every area is its own economy
Just because we are in a property boom doesn’t mean that every area of the market is affected. Some have bottomed out, while others are unrealistically overvalued. Finding areas where prices have bottomed out and are now heading back up — due to factors such as new employers moving to the area or a governmental investment in regeneration — is the critical factor. When you find such an area, get to know everything you can about it, especially properties with the potential for good cash flow. During a recession, some areas will be hit harder than others; your job is to find those with good fundamentals that are undervalued in the current market. When a crash happens, these will help protect a local market from the worst effects.
So, is it time to buy now, or wait? That decision will be based on a host of factors that relate to your personal finances and appetite for risk. I cannot give you financial advice, and I don’t know your circumstances., but there opportunities out there. I am doing well in the current market, and so are my students. I have also been through a big crash before, and know that when it happens again, cash flow will keep me in the black. At every point in an economic cycle there is massive opportunity; you just have to look for it.
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