4 Reasons You Should Not Invest in Real Estate Right Now

January 9, 2012
by Kyle Taylor
Home for sale signs

A few weeks ago we shared with you some reasons why this might be a good time to invest in real estate and this week we wanted to present the other side of the argument.

Here are four good reasons not to buy real estate right now…

Tough Lending Requirements

A lot of banks are holding off on making new real estate loans right now. Banks are stuck with millions of foreclosed properties and also millions of loans that are not performing, which might make them less willing to lend to you.

Additionally, so called “Buy to Let” mortgages, which allow users to put future rental income up as collateral, are much more expensive right now. Just check out a buy to let mortgage calculator and you’ll see that interest rates have gone up on these types of loans.

Housing Prices Have Not Bottomed

Housing prices have fallen a lot over the past four years, but some experts think we might have a ways to go yet. Real estate buyers may be catching a falling knife by jumping into the real estate market right now.

There is no guarantee that prices are not going to drop another 10 to 20% over the next few years and even if prices do start to rise, it could be a decade or more before investors start seeing favorable returns.

Renter’s Market

It is still cheaper to rent in many areas of the country than it is to purchase a home and for many markets that means the renter is in control. You might have a hard time finding someone to pay your asking price when trying to rent your home/condo.

Better Investment Options

Right now, there are a number of asset classes that are outperforming real estate. Investors have a number of choices including stocks, bonds, and metals; and they have all performed better than the real estate market in recent years. They are also much more liquid and carry less costs.

A quick look at a mortgage payments calculator reveals that a 30 year mortgage will cost you around 4% interest each year. That means that your investment will have to earn more than 4% a year to even be profitable. Not to mention upkeep, advertising, and accounting costs that come with an investment property. Many investment banks would suggest that you could find higher returns with lower capital requirements by looking elsewhere.

Let us know your thoughts…

Good luck Penny Hoarders!

by Kyle Taylor
Kyle is the founder of ThePennyHoarder.com

Share Your Thoughts

Top Articles

What Makes a Good Accountant?

According to the U.S. Bureau of Labor Statistics’ “Occupational Outlook Handbook,” there are a few concrete traits and educational requirements that make up a good accountant. These include analytical skills, being detail oriented, possessing a great ability to compare, interpret, and analyze complex figures, and having keen organizational skills. Oh, and obtaining a bachelor’s degree […]

What Annuity Options Are Available Post-Retirement?

Retirement is something many of us will look forward to. Saying goodbye to the world of work, the daily grind and having to get up at 7am every weekday morning are just reward for decade after decade of turning up to our jobs on time, putting a good shift in and contributing to the economy […]

Are You Making This Budgeting Mistake?

If you’re like many Americans, you sit down every month and make a rough budget.  You estimate how much money will be coming in, and you write down what you will do with that money. Perhaps, like many Americans, when the end of the month comes, you find yourself looking at a negative number. What […]

Company Car or Car Allowance: Which one to choose?

One of the employment benefits most often talked about in Australia must be the company car. It’s a valued benefit, but with a variety of options due to tax law changes back in 2002, it’s hard to tell what is the right choice for you. Let’s walk through the two options, and explore some of […]

Are You Saving All Wrong?

With saving interest rates so low on most accounts, you may be depressed each month when you look at your bank statement.  It was only about 5 years ago that you could easily earn upwards of 5% in a money market fund.  That just isn’t the case now.  But if you’re stuck at 0.50% or […]

The 4 Best Lottery Winner Stories

Whether you go to the gas station or convenience store and pick up your lottery ticket or instead frequent a site like William Hill 49s, you likely play the lottery because you dream of winning it big.  Who doesn’t? It’s hard not to imagine what life would be like as a multimillionaire when you hear stories […]

How to Save Money By Bundling Your Services

There are many ways to be a Penny Hoarder:  find free money with bank and credit card offers, find ways to make extra money on the side, and find ways to save money.  The latter may not get discussed as much as the other two options, but it’s still important. Saving money without diminishing the […]

Setting Your College Student Up for Financial Success

Ah, the end of summer.  Time for the kids to go back to school, including the college students.  The first year of college can be quite a learning experience, not just academically, but socially and emotionally as well.  Unfortunately, for many college students, it’s also a financial learning experience.  I say unfortunately because many college […]