Falling interest rates…
The latest news is that long term mortgage interest rates have just dropped this week to historically low levels. Of course, this presents yet another enticement for property hunters to consider real estate as a go-to investment in such down economic times. So, is it the correct move?
Possibly. In addition to interest rates, two other key things to take into account when considering jumping in to purchase your next investment property are your property holding time frame, as well as optimum purchase timing.
Your investment holding time frame
If you’re planning on holding your next purchase for a mid-range to long-term time frame (ie. – at least 3 years or longer) then by all means you would meet this criterion for jumping in and purchasing now. The sluggish real estate market will definitely remain stagnant for the next few years, especially with the latest news that banks are now picking up their rate of foreclosures, after sitting on the sidelines. This is due to allowing time to soften the blow of negative publicity, as well as deal with the injunctions from state attorney generals nation-wide to the robo-foreclosure process that enveloped the lending industry late last year.
So now that foreclosures are up approximately ten percent over this time last year, you’ll need to hold any newly purchased investment property a solid three years at the least before expecting any increase in valuation from anything except your own improvements (ie. – building upgrades and/or new tenant leases that have rent bump-ups in them, that will raise your overall valuation of the property).
The other main factor to consider when looking to invest now to take advantage of such currently low interest rates, is your purchase timing, and when it’s an optimum time of year to close on any deal. As I’ve mentioned in my prior article on the best time of year to buy investment property, August and January/February are prime months to be swooping in to make your deals. Right now, you have the opportunity to research and locate the best buying opportunities. But concurrently, you should be meeting with your lender to investigate how best to lock in these current interest rates for any Winter buys.
Lower rates and their effect on your bottom line
Also, keep in mind the effect lower interest rates will have on your bottom line. You’ll either be able to afford more investment property, or be able to yield a higher return on your investment with the advent of these lower rates. Obviously, purchasing a “larger” property (eg. – a four family house instead of a three family) should throw off more cash flow in the long run. However, by buying that three family now, and not stretching yourself to get the most house for your mortgage dollar, you should realize a more immediate greater cash flow return due to such low interest rates.
photos courtesy of cahomestrategies.com, wingwire.com, dsnews.com, taste-of-poland.com, homefinder.com