Is it now a good moment to invest in real estate?
2020 was predicted to be an excellent year for real estate investments, but as the pandemic came, prices dropped, and investors registered high income loss.
We cannot discuss what’s happening with the real estate industry in 2021, without addressing the apocalyptic times we’re living. COVID-19 has hit all sectors, and real estate is no exception. Sadly, for entrepreneurs, buyers, and sellers, the optimism they felt in December 2019, and January 2020 has quickly curbed. Once the world went into lockdown, there have been many concerns and speculations regarding the real estate market’s direction in 2021. And while we’re quickly heading to the new year, no one is sure how the industry will perform. But based on the data we have, we can make some educated predictions. So, if you’re looking for some guesses on whether it’s a good move to invest in real estate in the following year, stick around, and you’ll find out?
What the industry unfolded until now
Before making any guessing for the future, let’s focus on what we know at this point concerning the housing market. We cannot outline any prediction if you don’t first analyze the information the real estate industry provides now. But we must also keep in mind that the data is changing daily, and when deciding if to invest in the housing market, it’s best to check the latest reports.
Spring and summer are usually busy seasons for real estate investors, but the patterns changed in 2020. Private rents in the UK have dropped in the second quarter of the year, and some areas have even registered 34% drops in prices. The pandemic has brought a decline in real estate rates, even if during the summer months the authorities have eased the restrictions. If in 2019, the average rent for a room in London was £780 this year it dropped to £725.
But the pandemic has also brought an increase in the number of people who move out of big cities to smaller towns and suburbs, so the rent rate rose 2% in the rural areas. Towards the end of 2020, data shows a consistent increase and some experts expect the housing prices to register a recovery in the third quarter of 2021.
The data we gathered takes us to the next section, why it’s worth to invest in real estate in 2021.
Reasons to own a rental property
As an investor, you ask what are the pros and cons of diving into this business. Unfortunately, there’s no one-size-fits-all answer for all entrepreneurs. But there are some benefits most investors have when they choose this path.
Cash flow is the main reason you should invest in rental properties. Real estate provides you with a relatively stable cash flow, even if the rates drop a little, you still get monthly income to fund your living expenses. Also, the tenant cares for space, and the property is appreciating and adding to your net worth.
Some business people think about rental properties as stock dividends. They pay out on a regular schedule and don’t influence the value of the apartment or house. Real estate cash flow is often higher than stock dividends, and the underlying property doesn’t experience the fluctuations, stocks do.
At the moment, it’s not the most fitting thing to say that the real estate market is a stable investment, but people will always need a home, and the industry remains profitable for most investors. Just to make sure you won’t lose money hire facilities management services including property management for landlords to assist you in the rental process. For a property to be profitable, you need to get at least 10% cash return on the purchasing price.
Affordable and safe leverage
The real estate market has low-interest rates, and finance solutions are plentiful. Authorities worldwide have encouraged banks to provide clients with generous mortgage terms and tax incentives to help them deal with these challenging times.
Even if the pandemic is still affecting the world economy, you can still buy properties with as little as 3% down. For investment properties, most financial organisations ask only to put 20% for the first house.
When cared and maintained a property’s value grows in time. Let’s say that in the given context, the inflation is around 3% per year; this means that real estate prices go up with 3% every year. You get a return on your invested capital, along with the profit you gain monthly from rent.
The power of leverage in the housing market is that you can grow your returns in the long run. Yes, there are also risks associated with this activity, but all businesses imply risks, and the real estate market is no exception.
You are in control
Do you want to grow your income in the next five years? Real estate investments can help you do it. If you already have cash and are looking for ways to diversify your investments portfolio and earn a return, the housing market brings many opportunities.
The real estate market allows you to use different strategies to achieve your goal. You can choose the path to become a real estate entrepreneur rather than an investor. You may not have a lot of cash, but if you have time and a desire to grow your business, you can build wealth. You can use methods as house flipping, wholesaling, and real estate commissions. As you start gaining income, you can invest it in more passive rental properties or other deals.
Owning rental properties is a way to generate passive income because you don’t actively work to earn money. When the properties make enough money, hire a professional property manager to handle the job for you.
The bottom line
Real estate experts around the world state that the rental market will stay active in 2021, amid the current pandemic. While some people may have left big cities and got back to their home towns, many still need to rent or buy houses.