Time For An Investment Property?

According to the National Association of REALTORS®, the period ending in July 31st showed the fifth consecutive month of rising home prices. In fact, the national median home price has risen 9.4% in the last year alone. But if you are sitting on the sidelines, wondering if you have missed your chance to invest in real estate, you may be in for a surprise.

Mortgage rates are nearly one percentage point lower than one year ago, which means it is still a great time to invest in real estate. In fact, mathematically speaking, housing affordability hasn’t been this good in decades, and if you are looking for a place to invest, many investors are looking to real estate. But you don’t have to be an experienced investor to take advantage of these market conditions. Many first time investors are getting into the market, hoping to turn a healthy profit. According to the Wall Street Journal, investors increased their investing in real estate by 64% in 2011, citing low interest rates and low prices.

Are you ready for a second home? Consider the following:

1. What kind of home are you looking for?

A vacation property? A vacation rental? Rental property? This should be the first item to decide as each has their own set of pros and cons. For example, if you are considering a vacation property, you will need to think about where that might be, the logistics of getting you there, how often you might actually go, and how it will be maintained. If you are thinking of renting it out as a vacation rental, make sure the loan you acquire allows for vacation rentals, the property is zoned for vacation rentals, and you have determined the logistics of how that would work (if you are going to be using a property management company or renting it out yourself).
Likewise, if you are considering a rental property in your own area, you need to determine if you intend to be your own landlord and what the requirements are to do that (in terms of zoning, forms, rules and regulations, etc).

2. Do the finances work for you?

It isn’t just about the purchase price. You must consider the ongoing expenses of maintenance and utilities. And if you are receiving rental income, do your expectations for rent match the market rates? What happens if you don’t rent it out certain months? What does the homeowners insurance look like for a non-owner-occupied property? These questions must be taken into consideration.

There are also tax benefits that you may qualify for when owning a second property, along with additional expenses that may be written off.

3. Timing

How long to you plan to hold onto your investment? Three years? Five? Ten? Will you be moving into it when you retire? Penciling out potential scenarios is helpful when determining if a second property lines up with your investment goals.

There are a lot of things that one must consider and the process may seem overwhelming at first, but even with the housing market challenges of the last few years, real estate has still proven to be a good investment. In fact, average housing prices in Washington State have risen an average of 6.31% per year since 1975. Over the last ten years, real estate has appreciated 26.21%. This means that a property purchased for $200,000 in 2002 may be worth $252,420 today.

**If you would like additional information on investing in real estate , please contact us. Send me an email: elizabethn@johnlscott.com and I will send you my article on 16 Important Considerations You Must Make When Investing in Real Estate. If you are ready for a in-depth discussion, we welcome the opportunity to set up a meeting with Bruce or myself and a financial advisor to answer your questions and help you make a plan.

Resources:
http://economistsoutlook.blogs.realtor.org/2012/09/07/latest-housing-affordability-index/
http://online.wsj.com/article/SB10001424052702304299304577348083297932466.html