If you’re thinking of buying property to collect rental income, then you must be asking yourself whether or not this is a good time to do it. For many people, having an additional source of income is something they plan in advance.
As many turn their attention to possible options, it’s only a matter of time before they get introduced to the concept of rental income. By definition, rental income is any payment you receive for the use of renting property. And although property can be expensive to buy, by renting it you will be making your money back.
However, certain things need to be taken into account to make sure you’re buying property at the right time. So if you want to know if it’s a good time to buy rental income property, this is the article for you. With all that said, let’s start.
When It’s A Good Time To Buy
The real estate market can be a good indicator of whether or not it’s the right time to buy property. To easily understand this, we have to look at a couple of factors that will help you figure it out. Let’s do that.
If Morgage Rates Are Low
First things first, we have to look at mortgage rates to determine if it’s the right time to buy rental income property. Since very few people have the cash to buy property, you will most likely have to take out a bank loan. But what happens if the mortgage rates are high?
We’re currently experiencing relatively low mortgage rates. In the US, the mortgage rates over a 30-year-fixed-rate have dropped to 2.5%. Ask any real estate agent and they’ll tell you that these are quite favorable rates. What this means is that you can buy the property for the purpose of renting it. This isn’t anything unusual as many people do it. But the low mortgage rates make it quite affordable to buy property to rent. Whenever mortgage rates are down, real estate investors are quick to purchase property.
If Real Estate Appreciation Is On the Rise
Real estate appreciation simply means that the value of a property will gradually increase over time. In Layman’s terms, this means that homes will see their value increased. For potential investors looking to rent property, this is a very good thing. As property appreciation rises, so will your charge more for rent.
But what affects real estate appreciation and how do you know if it’s on the rise? The biggest factor for property appreciation is the market itself. Supply and demand play a huge factor in determining this. Other factors include future development plans around the property, interest rates, and of course, the location of the property.
Many investors purchase homes in areas that are known to be targeted for future development. This will ultimately increase the appreciation of the property and the renter can ask for higher rent.
If the Demand For Rental Property Is High
Do not underestimate the supply and demand for rental property. This is a factor that will ultimately tell you whether or not buying a property for the purpose of renting is worth your money, time, and energy.
To easily determine if the demand for rental property is high, we have to look at a couple of factors. One of the more important ones has to do with buyers being priced out of the market. The more homes are sold, the less will be available on the market. This creates competition, with many buyers having to enter bidding wars with other buyers.
This leaves plenty of buyers priced out. Another factor to look at is the socio-economic situation we currently live in. As things improve and we’re able to travel, rental property will inevitably be in high demand. Services such as Airbnb and Booking are expecting a steady increase of travelers over the coming months. This will ultimately impact the demand for rental property.
If you’re planning on buying property, then the time to do so is NOW! Not only will you be investing in something timeless, but you’re also doing it in a time where the tenant pool is very large.
When It’s A Bad Time to Buy
Before we end, let’s briefly discuss when it’s a bad time to buy rental income property. For starters, we only have to look at the opposites of the many factors that we discussed previously.
An absolute worst time to buy rental income property is during low housing inventory. What this means is that you should never invest in real estate when the competition is very high. This will only decrease the chances of finding a great deal.
Another thing to look at is closely tied to, you guessed it, mortgage rates. If low mortgage rates are great for buying rental income property, high rates are bad. And lastly, you should never buy rental income property if government laws protect tenants from eviction.