Is buying investment property in a recession a good idea, or should you be selling property instead? During a recession most consumers become skittish about large purchases and incurring long-term debt, and buying property typically involves both of these factors. The common reaction to tough economic times is a tendency to hold onto investment capital instead of placing these funds at risk, but a recession also means that home prices and real estate values have usually dropped substantially. If you have the funds available to purchase property and ride out the recession then this economic time can be ideal for purchasing property as an investment. It is important to examine any potential investment property closely before making the decision to buy though, because tough economic times means more opportunities but also more risks as well.
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Before buying investment property you should have the home professionally inspected. Foreclosures can sometimes be found for pennies on the dollar, but these homes may also need expensive repairs and upkeep before they can be lived in or rented out. Property should never be purchased using only pictures to base your decision on. Some foreclosures may be completely stripped down, while other investment property can be fantastic values when the economy is bad because private owners are highly motivated to sell. Careful research can help you find the true deals and eliminate any poor investment choices.
While buying investment property during a recession can be a good choice for many investors this may not be a good idea for everyone. The recession could cause you to lose your job, or cause your finances to become strained because of fewer hours at work. If your investment capital is needed for daily expenses or to shore up a savings account with a low balance then this may be a better choice in some cases. Each investor is different, with different resources, goals, and strategies. If you have the funds available to buy property, or you have the credit needed to qualify for a mortgage and the 20% down required, then you can take advantage of all the fantastic savings the recession and depressed housing market can offer. Selling during this time can result in a big loss, especially if you purchased the property before the economy started the downward trend.
While the instinct to sell investment property when the housing values start to fall is a natural reaction, so that you can limit your loss, most experts advise that buying investment property at this time is a better choice. While this option is not available to everyone if you own property the best option is to hold onto it until the economy turns around. One upside is that higher numbers of foreclosures means that more people than ever are looking for homes to rent. If you own property renting it out can help financially if this option is a possibility, and buying new investment properties to add to your portfolio can be done at uk new build rock bottom prices.
Are you about to start investing in real estate? Or perhaps you've already put your toe in the water but want to learn more. Here is an overview of the factors you need to take a look at in order to project your potential return on an investment.
Now that you've got all the numbers laid out in front of you, you 'just' need to build a financial model which will allow you to project cash flow throughout your ownership term, and then use time value of money calculations to create a present value of those flows. Compare the present value of your future cash receipts against the amount of cash you will outlay upfront. If it's greater, congratulations- you have positive Net Present Value, and this property looks attractive. If the result is negative, it's a red flag-- you need to take another look, because this may not be a good deal for you.
The obvious comment you might have is... "This all sounds awful hard! Aren't there tools which can help me?"
The good news is that there are! In fact you can use an online investment property calculator which will do all of the heavy calculating for you. You simply plug in the numbers, and review the results. Now THAT's some smart investing!