The financial crisis of 2008 and resulting recession delivered reduced home values and increased foreclosure activity, both of which are negatives for homeowners. But these two factors make today an extremely positive time to invest in real estate.
Thanks to declining home prices from 2009-2010, a smart investor can now pick up properties for far less than five years ago. This increased affordability makes the prospect of buying property to hold for rental much more attractive today.
As has been reported, foreclosed inventory makes up 30-35 percent of the home sales in our market each month. These distressed properties are priced below market value and therefore sell much more quickly than the market average. This distressed pricing represents another opportunity for an investor to purchase real estate to improve and flip or hold for rental income.
Lending standards have tightened significantly since 2008. Therefore, money for investment properties is harder to come by. While lenders are commonly looking for 20-35 percent down payments on investment properties and a good credit score from borrowers, they are lending at much lower rates than five years ago. Here again, for the savvy investor, another positive to buying today.
The flip side to lower rates for borrowing money is that banks are paying lower amounts on money placed in their institutions. If you have money in savings accounts or in certificates of deposit, you are seeing rates below 1 percent in most cases. This low return makes it an excellent time to pull your money out and invest in real estate! In fact, more than 30 percent of all closed transactions last year were cash. This trend is a direct result of low interest rates being earned on cash deposits.
The one thing that did increase during the recent recession was rental rates. As people lost their homes to foreclosure or lost jobs and had damaged credit scores, they could not buy a home. The result is that Americans turned to renting in recent years. This increased demand allowed rates to rise while overall home values were declining. This improved return on investment makes investing in real estate a positive consideration as well.
Being a landlord is not everyone’s cup of tea. For that reason there is a number of quality property management firms associated with the Greater Chattanooga Association of Realtors that you may want to interview as you consider investing in real estate.
So, if you are not getting the return you want on the money you have in savings, now is an excellent time to consult an experienced Realtor with GCAR and look at the option of investing in real estate.
Mark Hite is president of the Greater Chattanooga
Association of Realtors