Real estate investing can make you wealthy. Each new property increases your net worth and cash flow.
You can amass multiple properties with leverage. As long as rental cash flow covers the mortgage and other costs, you can continue expanding.
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However, buying a new property comes with risks. Not every property immediately breaks even, and some never become profitable.
Timing matters as much as the principle. Buying more properties leads to wealth, but poor timing can ruin your finances.
Expanding your portfolio provides more wealth if everything goes smoothly. However, expansion also leaves you vulnerable.
Multiple vacancies can lead to stressful decisions about covering costs. You may have to sell a property at a less desirable price to lower your stress.
Is the timing right for you to buy a new property? We’ll discuss some factors to consider when you invest in real estate.
Mortgage Interest Rates
Mortgage interest rates bite into your cash flow. Luckily, we have relatively low interest rates. However, the Fed plans to increase the rate several times in the future.
Remote investors can widen their search to target affordable properties. You can find mortgage interest rates across each state and compare them. We provided some 30-year rates with 20 percent down to kick off your research.
- Illinois — 4.019 percent
- Iowa — 4.042 percent
- Florida — 4.036 percent
- Minnesota — 4.082 percent
- Wisconsin — 4.063 percent
- Tennessee — 4.037 percent
Taking out a 15-year mortgage cuts the interest rate by roughly a percentage point. You can also lower your interest rate with a higher down payment.
Those strategies lower your risk. However, you end up with less cash to invest in other properties.
Many real estate investors make the minimum down payment and use 30-year mortgages. They get more money to invest in other properties.
Lengthier mortgage terms equate to a lower monthly bill. 30-year mortgages provide more cash flow than their 15-year counterparts.
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The Type of Mortgage
Investors can select from various mortgages. Many people flock to FHA, 30-year, and 15-year mortgages.
The mortgage types and payment structure impact your monthly cash flow. Review several mortgages before settling on the right mortgage for your needs.
Your Financial Stability
How many vacancies can you handle? If you have 10 properties and sweat at the thought of a single vacancy, it doesn’t make sense to buy a new property.
Some investors wait for cash flow to accumulate before making another purchase. Leverage leads to initial growth but comes with risks. You may benefit from paying off properties sooner to remove the weight of debt.
Real estate investors thrive on debt, but it creates stress. Some people would benefit from paying off debt instead of expanding their portfolios.
Assess your financial stability before investing. You don’t want to take one step forward to fall back two steps.
The Time Commitment
Real estate investing requires considerable work. You have to find great deals and manage the property. You’ll have to pick up the phone and address issues as they arise.
Some people have too much on their plates already. Investing in a new property would lead to more work and stress.
Over-investing can lead to burnout. Real estate investors with large portfolios may not need the extra investment. Some can make do with what they have but get greedy.
Property management companies help investors save time. You’ll lose cash flow on your property. However, the saved time often justifies the cost.
Consider how much time you have for a new property before making an investment.
The Property’s Purpose
Rental property investing is a popular strategy. Investors buy properties and collect rent payments. These payments cover the expenses and build wealth each month.
However, some investors don’t want to lock themselves into long-term relationships. They don’t want to manage tenants and deal with those challenges.
Some real estate investors buy properties to flip them. After upgrading fixer-uppers, investors put the properties back on the market. They make a profit by charging a higher price on the property relisting.
Flippers do not hold onto debt for long. They aim to buy and sell the property within 1-2 years. Less debt increases your flexibility.
Rental property investors hold onto property debt for several decades. They justify the debt with cash flow that exceeds costs. Cash flow increases significantly after the mortgage gets fully paid.
Some investors buy properties for storage. It’s even possible to allocate a small section of your house as storage for someone else’s clutter.
Set objectives before buying a new property. Understand how the property will affect your net worth and finances.
A Hedge Against Inflation
Investing in real estate provides a hedge against inflation. Real estate prices rise to match inflation due to land’s limited supply.
Despite rising prices, your mortgage stays the same. A fixed-rate mortgage will not rise with inflation.
You can raise rents to compensate for higher inflation. Higher rents increase your cash flow and make it easier to pay the mortgage.
Not every asset performs well during inflation. Stocks derive their valuations based on future potential. Inflation hurts the future outlook by decreasing the purchasing power of future dollars.
If you feel stressed about inflation’s impact on your stocks, consider real estate as a hedge. Buying a new property provides long-term protection from inflation.
Ready to Buy a New Property?
Buying a new property is a serious decision. You’ll expand your net worth and take on more responsibilities. Buying more properties can lead to significant long-term wealth.
Most investors use mortgages to finance their purchases. Mortgages provide the gateway to homeownership and real estate investing.
We offer a variety of mortgages to assist with your investing goals. You can apply for a mortgage today to see how much you’ll receive.