Real Estate Investment in Residential Properties
Before talking about the subject, it becomes imperative to know what real estate investment in residential property means. Houses, townhouses and condo structures come under the purview of residential properties. In other words, these are the properties for which you could get money when you allow an individual or a family to stay in it. Thus, these properties aren’t used by the owners as their primary residence. Rather, they use them as rental houses and buildings to generate ongoing rental income from tenants. Investment in such properties is called residential real estate investment. People who invest in real estate often expect to enjoy capital gains over the years when they are ready to sell it, largely due to appreciation in the property values. However, it’s important to note here that the tax implication for investment in real estate, which is acquired with the objective of investment purposes, is different from one where the owner and his family stay.
Is Investment in Residential Property beneficial or not?
Investing in Residential Real Estate
Easy to Acquire: Residential investment properties are quite profitable in long run. To begin with, it’s easier to get hold of such properties and there’s less risk associated with them. In case the economy takes a beating, you could be up for huge losses in case you have invested in commercial real estate. However, with residential investment, there’s no need to panic as people will always need places to live in, which in turn would give you the opportunity to make money by renting or selling your property.
Steady Cash Flow: Residential property investors should be careful while selecting a property. Finding a suitable location is one of the key points to consider. You should make sure that you are buying a property in an area where the demand isn’t likely to decline. This means that the locality shouldn’t have high crime rates, deteriorating houses, or be in a bad neighborhood with difficult access to everyday needs (grocery shops, hospitals, banks etc.), poor transportation options, and unavailability of reputed schools. At the same time, you shouldn’t be overly concerned with your property’s appreciation. Though it should be one of your prime goals, focusing on it all along while neglecting other important factors like the location and ease of accessibility to everyday objects, could cause big problems in the future. Therefore, a steady cash flow should be your foremost concern while buying residential investment properties. In case you are taking out a mortgage, it becomes all the more important for you to ensure a positive cash flow.
Investment Return: Whether you buy a residential investment property for cash or with a mortgage, you are likely to get a regular, and sometime lucrative, return on it by renting it. Though this return could be less than what you would make in a robust stock market, you have a more secure investment in a declining market.
Inflation and Deflation Hedge: Investing in residential real estate can work as a hedge against inflation as well as deflation. In case you buy the property with a mortgage, it will be more of an inflation hedge, as you will pay your loan back in depreciating dollars. At the same time, you will gain from price appreciation and rising rents. Despite your taxes and repairs tending up over time, you can take solace in the fact that your principal and interest on your mortgage payment will remain fixed. In case you buy the property outright, you can consider it to be of a deflation hedge. If you have a mortgage with a 5% interest rate and you pay it off early, you will be doing the equivalent of increasing your rate of return. When you own a residential investment property with no mortgage, you can still benefit from inflation with rising rents and price appreciation.
Real Estate Trends for Residential Investment
According to real estate trends in 2015, foreign investments will continue to rise in the U.S. and in cities such as Atlanta. With such incoming funds, US real estate companies will get newer investment opportunities. The market is also set to experience higher capital inflow and rising amounts of allocation. Though the supply of properties will dwindle and higher demands, easy funding options will come into play. The overall loan sector, which witnessed a few cases of non-repayment of loans in the recent past, has encouraged lenders to ease lending options.
Decreasing foreclosure rates are among other notable real estate trends of June 2015. With a decline of 4%, foreclosure is at the lowest level since February 2006.
Commercial real estate trends in the US show an increase due to better job opportunities and corporate friendly environments, in some places like Atlanta, there has been a boost in the demand for residential as well as industrial real estate.
Image Source: http://bit.ly/1HtnEIm
Rise in residential real estate investment
According to a recent survey, there’s a renewed interest in residential investment properties, thanks to an upbeat real estate market in 2015, which has encouraged investors to buy more. This in turn has contributed to a sustained market growth. At a glance, here are some factors causing an increase in residential investment:
Increase in Home Prices and Decrease in Foreclosures: Thanks to a variety of real estate developments in the US, both domestic and foreign buyers have now a wide array of choices to pick from. With easy and flexible loan and other financing options, rising property prices and an increasing demand, coupled with declining rates of foreclosure, investors are adjusting their strategies in a thriving market.
Increase in Price Points: With a rising focus on higher price points, 63% more investors considered $200k+ properties than last year. Residential investment properties in higher price points is set to grow. This will be sharp contrast to under $100K properties, for which interest has waned. This is mainly due to the lack of inventory and high competition for these properties.
Investors Using Broadened Search Strategies: As many as 34% of investors are found to be searching for properties outside their home states as well as statewide since local property deals take a beating. For investors considering properties outside their home state, the top choice is Florida, followed by Georgia, Texas and North Carolina.
As the residential investment property for sale is ripe for rapid growth, now is the ideal time to jump in and make the most of your investment.
Additional Information
Why is Financial Planning Important?
Seven Retirement Investment Options
A Balanced Guide to Financial Planning