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.
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!