Billionaires usually advise investing in real estate to earn a stable, passive income. Some of them even say that it’s the greatest way to build real wealth and achieve financial freedom.
Considering that there has been a surge of renter households in the U.S. amid the pandemic, the billionaires’ statement seems true, indeed. While thousands of workers suffered massive income losses, property owners enjoyed a fortune. However, it doesn’t necessarily mean that it’s easier to buy a home these days.
Lockdowns may have already been eased, and in some countries, including Australia, social gatherings are allowed again. But until a cure is found, a second wave will always remain a threat.
Therefore, if you’re planning to buy a home before the year ends, here are some things you need to note, as told by experts:
1. The decline isn’t a reason to celebrate
While we can’t help but rejoice about the collapsed home prices, we shouldn’t celebrate too early. According to Eliza Owen, Head of Research in CoreLogic, the upended real estate values aren’t a celebratory factor unless you have a steady income and you’re confident about your future earnings.
She adds that over the next one or two years, property prices may drop again by no more than 10% nationally. Therefore, don’t rush into buying properties anywhere in Australia if your income at the moment is unstable.
2. The uncertainty hasn’t been priced into the markets yet
SQM Research founder Louis Christopher has pretty much the same message as Owen. He just pointed out that affordable homes are potentially suitable for those who can afford to buy, but if we look at the reasons for the potential decline, that’s for bad reasons.
He advises home-buyers to wait it out first because the uncertainty may not have been priced into the markets yet.
3. Make the move if you already found an ideal property and are in a great position
Professor Steven Rowley of Curtin University’s School of Economics, Finance, and Property, tells home-buyers to proceed with a purchase if they’ve already found a suitable property and are in a favourable financial standing. If they’re not severely affected by the pandemic, there may be an exceptional deal waiting for them. After all, there remains to be a good deal of people who haven’t changed their minds about buying a home. Check with your agent, then start budgeting for the closing costs, such as insurances, appraisal fees, and conveyancing.
4. Start small
If you’re new to investing in real estate, the prospect of putting a lot of your money into a property will be daunting, so start small. You may not end up with the best deal yet, but it’s only your first one. The experience will eventually lead you to more profitable deals.
Tai Lopez, investor and adviser to many multimillion-dollar businesses, recommends looking into wholesale deals. It will enable you to put a property under contract for as little as US$1,000. You will be selling the contract to another buyer before its expiration and potentially make US$5,000 to US$15,000 positive cash flow from it. But this doesn’t come without risks, so consult with an expert before carrying this out.
5. Financing companies have tightened their criteria
For those planning to apply for a home loan in the U.S., you may be surprised to meet more stringent requirements. The pandemic-induced recession has pushed lenders to tighten their criteria again for both home-buyers and real estate investors. Even the FHA has done the same, as well as non-qualified mortgages.
As such, investors in need of short-term lending may face a great obstacle if they do not meet the new standards. But qualifying property owners may be in for some perks. If you pass all the latest mortgage lending criteria, you may be able to refinance at lower rates. You may also borrow against the equity of your property if you’re planning to improve your portfolio.
6. Your rental income may become unstable
If you’re buying a property to lease out to tenants, the passage of the CARES Act may put you at a disadvantage. That’s because the increasing unemployment rates due to the pandemic has allowed a respite to tenants who may be unable to pay rent. Starting March 27, 2020, eviction has been frozen for 120 days for renters living in properties that receive federal subsidies.
But if you have a government-guaranteed loan, you may be allowed to appeal for forbearance for up to 360 days. That is if your income has been dented due to the pandemic. Therefore, narrow your options to government-backed mortgage lenders if you’re financing.
There is no easy way to determine the future of the real estate, considering that absolutely no one saw COVID-19 coming. Hence, it’s best to focus on our finances more than ever, grab the first promising investment opportunity, and continue finding ways to build your wealth.