This is something I have thought about a lot. The conclusion I came to is that it’s probably the right time for me. That doesn’t mean that it’s the right time for everybody though. So let’s look at a couple of factors to determine if now is the right time for real estate investing.
Your Situation Matters
Most of the real estate books I’ve absorbed lately come at it from the angle of making it a job and becoming a millionaire. I think the “right time” is a pretty personal decision, like all investing.
Are you going all in on your first property? Will the down payment eat up your savings, or if you’re house hacking, could you get stuck in a bad situation with no alternatives? I would consider situations like this to be higher risk, and therefore things like the current state of the real estate market or economy very much matter. Imagine 2008, and look around. It doesn’t look too different from how “great” things were in real estate until things changed. If you don’t have very much cushion behind you if the market falters, then now might not be a great time.
Do you have a steady job, diversified investments, and a stable housing situation? Well, you’ve probably got a bit more wiggle room to test the waters of real estate.
The Current Real Estate Rental Environment
Every other day there is an article about lower income workers being priced out of the market. I see it where I live, and I read about it happening everywhere. Restaurants are struggling because servers don’t want to commute 30 minutes for a minimum wage gig. Median home prices and rents are rising much faster than median incomes. How much more can the system take, or have we already gone too far?
One thing keeping homes “affordable” and prices high is ridiculously low mortgage rates. Head on over to bankrate.com and see what you can get (and read my post on understanding rates)! If you don’t believe that that’s low, here’s a link to the St. Louis Federal Reserve website with a nice chart to show you. It goes back to the 1970s, make sure you check out the full picture!
While this situation is something that can work itself out over time, I think there are at least certain parts of the country that are due for a correction. However, I don’t know how big, when, or even if this will happen. I just see a lot of similarities to 2008 and know that real estate markets tend to be cyclical.
Long Term
Will demographic shifts in the United States impact real estate? With a lower birth rate and immigration a political hot topic, there could be some impact to housing. Preferences also change. Thanks to the pandemic, suddenly some part of the workforce can work from anywhere even while employed with a traditional employer.
Global warming has long been accepted around the globe with a few pockets of resistance. Recent events seem to be confirming that things are changing. How much will this shift weather, land, and land values in the coming years? Will it change the most desirable locations for us to live? Will it move the shoreline in the coming decades?
I certainly have considered this as I consider whether buying waterfront property is the right move for me. On the ocean it seems the hurricanes get meaner every year. Inland it seems anybody’s guess whether your nearby river or lake is going to flood or go dry for the year.
Is Now the Right Time for Real Estate Investing?
Most of the things I’ve read in books or online encourage you to “just go for it.” In my case, it is exactly how I feel. Real estate provides me with an additional source of income and I have a decent back stop in terms of my current financial situation. I want to learn now in case great opportunities present themselves in the future, and dipping my toe feels just fine.
Also, I’m investing for cash flow not appreciation. Rents tend to be stickier than housing prices, so as long as I can cover mortgage payments and other expenses with the rent, I can wait out the storm.
I don’t worry too much about the very long term since I can always adjust, though short term I think things are over-extended. I would keep your day job and dip a toe, not cut loose and go for it because everybody’s talking about how much money they made in real estate last year.
You probably aren’t in a cab right now because those are rare outside of major urban areas plus, you know, COVID. But if you were, your cabbie would be talking your ear off about cryptocurrency and real estate. I don’t know what’s going to happen, all I’m saying is that it feels like now is a risky time to “go all in” and overextend yourself. Personally, I feel comfortable stepping in sometime soon as I do see a few good opportunities for cash flow.
