The COVID-19 health pandemic has affected millions of people and businesses all around the world. It caused millions of people to lose their jobs, forced businesses to slow down their operations, and more.
Hence, the memes about 2020 being one of the worst years in recent history is quite understandable.
The stock market took an obvious hit as establishment sales and income plummeted, so did the purchasing power of the majority of people.
The uncertainty of the market forced investors to find another option to invest their money into. And nothing had grabbed the attention of the people more than the real estate market.
Is investing in the real estate market in 2021 still a good idea? What are the things that you need to consider before putting your money on the table?
Would it be worth it in the long term? Let’s discuss the current investment climate in this article.
The effects of COVID-19 on real-estate investments
There has been a lot of things that happened during the past year. Unfortunately, most of these changes are quite bad for the majority of people.
Almost all the economies in the world made a deep dive down, especially in the industry of hospitality and tourism. But what about the things in the real estate market?
You might be surprised that this industry is one of the most stable markets right now. In fact, some might say that the industry has boomed in recent months.
The real estate market has boomed during the pandemic
Some of the rules in response to COVID-19 actually improved the real estate property market. For example, the lowered mortgage rates in the US prompted some people to refinance their mortgage loans.
Others decided to buy rental properties due to cheaper interest rates.
Most people are waiting for the next development in the social distancing regulations. The impact of the pandemic will likely get prolonged if the vaccines and other factors won’t work in the businesses.
The countdown to “normalcy” will affect a lot of investment decisions in the coming months. So if you’re planning to make an investment decision this 2021, you might want to watch your local lockdown guidelines.
High demand, low supply of housing
One of the main reasons why the real estate market had boomed is the shortage of housing supply. Construction projects are forced to be halted due to the guidelines needed to be observed. That’s why the number of new houses, rental establishments, and other real estate properties is quite low.
Things to consider when investing in real estate
Buying a real estate investment property is not an easy task. You will need to make sure that your capital (or future income) will be met to be profitable. And the profit margin might not be apparent in months or years.
Not to mention that the current state of the pandemic is still very shaky.
Before getting into rental investments, you must first consider the following factors. These will likely be the things that will affect your whole investment.
1. The length of lockdown
There is a shortage of housing projects due to the slowdown of construction. However, once the lockdown has been lifted, expect that the supply of housing projects will once again skyrocket. This could mean that the buyers will have more negotiation power, and hence, lowered prices.
If the lockdown protocols are still in effect within the majority of the year, there is a big chance that rentals and house prices will go up.
This is due to the chance that the housing project shortage will continue due to restrictions. This means that you can give higher rental prices to your tenants, and hence, higher investment profits.
2. Mortgage rates
The mortgage rate is another important factor to be considered in real estate property investment. Last 2020, it has gone down to its lowest point in decades. Nevertheless, people who caught the wave had benefited from this through refinancing or buying properties with cheaper interest expense, and other additional payments.
Experts believe that there will be an increase in the mortgage rate in the latter part of 2021 due to businesses starting to regain their momentum.
This means that if you’re buying a property right now, you might end up paying a bit more than expected. Of course, this is unless you’ve snagged a deal with a fixed interest rate in the mortgage contract.
3. Demand and supply
If the lockdown eases out in the following month, will the demand and supply stay the same? Would people still need new areas for their home offices? Are rentals still going to be in demand?
One thing to watch out for is the distribution and efficacy of vaccines. So far, this is the best indicator of whether the pandemic will go away sooner or later.
If the demand stays high, and supply stays low, there is a big chance that real estate rental property investors can reap profits.
4. The availability of good deals
Chances are, you’re not the only investor eyeing good deals in the market. Other investors will also try to snag the cheaper properties to enjoy more profit.
If you’re not seeing any changes or opportunities, you might want to take your time and invest in widening your cash flow instead. Just in case you finally found a worthy investment, your fund is ready.
Take note: make sure to check the eviction rate of the place you’re planning to invest in. A lower rate means that the tenants are more prone to eviction or late payments.
Should you invest in a rental property?
If you found a rental property with a good price, there’s nothing wrong with rolling the dice and trying your luck.
You can still reap the benefits of low mortgage rates and the high demand for housing products that are still felt today. A longer lockdown might cause housing price appreciation in the future, as well.
However, do take note that there are millions of people who are lost their jobs following the implementation of lockdown last year.
You might want to invest in locations or areas that have a high chance of economic bounce backs.
This way, even if the interest rates started to skyrocket, you can still expect regular income from your tenants. Hence, getting a paying tenant pool is also an important consideration.
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