If you’re wondering whether it’s a smart move to buy more rental property, here’s why it might be a good idea. Imagine fast-forwarding fifteen years and having your grown-up kids asking why you didn’t snap up more properties when prices were lower. Truth is, rental property values have increased significantly as interest rates have dropped, especially after the pandemic. This means it now requires more capital to achieve the same income from investments as before. However, rental property prices haven’t seen the same spike, presenting a unique opportunity.
Globally, from the UK to Hong Kong, property prices are bouncing back. In the US, single-family homes have seen a strong recovery, but rental properties haven’t kept pace. Looking ahead, with more people working from home permanently and mortgage rates expected to remain low, real estate could be one of the best investments.
When considering more rental properties, it’s crucial to understand mortgage rates are historically low, making it an ideal time to buy. To determine if a property is worth the investment, calculate the rental yield by dividing the annual rent you expect to earn by the purchase price. For example, a house in Vallejo, California, costing $250,000 could rent for $1,500 a month. Annually, that’s $18,000, which results in a 7.2% rental yield. Even with potential challenges like property taxes, operating costs, or periods without tenants, the financial benefits could be substantial, especially if you’re not borrowing the full purchase amount.
Some investors prefer buying properties outright with cash. If you have $250,000 and it’s earning a 3% yearly return, shifting this into a property with a 7.2% rental yield could net a 4.2% premium. It’s a way to potentially earn more as a landlord, despite the risks involved.
Realistically assessing rental yields ensures you pay a fair price for any property. Even if financial difficulties arise, knowing your expenses are covered can provide peace of mind. Moreover, the real money-making potential in real estate often begins when you start a fund, buy multiple properties, leverage them, and possibly even establish a Real Estate Investment Trust (REIT).
The bottom line is simple: rental property investments boil down to straightforward math and generating income. Even if property values drop, the rental income is what sustains the investment’s value over time. As rents may decrease eventually, the current larger gap between asset values and rental income suggests that now is a good time to invest and simply wait for the right opportunity to sell.
For those looking to dive deeper into real estate investment, exploring platforms like real estate crowdfunding can be a great starting point. These platforms offer access to commercial real estate deals that were previously only available to large institutions or very wealthy individuals. With the aid of technology, it’s easier than ever to find properties with high rental yields and lower valuations across the US.
When shopping for a mortgage, remember that rates are incredibly low due to the pandemic’s impact. By gathering multiple offers, you can leverage them to secure the lowest possible rate, ensuring your investment is as cost-effective as possible. Remember, if you find a good deal, can manage the payments, and plan on holding onto the property for over a decade, taking advantage of these low rates could be particularly beneficial.
