King Solomon prized wisdom and justice above all, as we see again and again in the words attributed to him in the Book of Proverbs and other sources. And he also believed in letting wisdom lead to action, as shown in the famous story of his decision when two women came before him with a baby, each claiming the child was hers. Solomon ordered that he child be split in two – a strategy which revealed the woman most likely to be the baby’s mother.
For investors in income property, too, the wisdom gained about the market should lead to decisive action. And despite some contradictory observations by real estate experts and trend watchers, now may well be one of the best times to take the first steps toward investing in income property. Here are some reasons why.
1. Mortgage Interest Rates
Current mortgage interest rates are at or near historic lows, hovering around 3% for some types of loans. Although some analyses of housing trends suggest that these rates may rise slightly in the next year or so, there are good reasons to expect they will still remain relatively low since the Federal Reserve expects to continue its plans, begun in 2012, to buy up as much as $85 billion in mortgage backed securities monthly in an effort to keep stimulating the housing recovery.
Some projections see no major rise in interest rates until at least 2015, when the Fed will most likely be phasing out its mortgage securities plans. That means that an investor who takes out a 30 year fixed rate mortgage of the kind recommended by Jason Hartman will be locking in rates low enough to create a significant asset for the future.
2. Availability of Low-Cost Properties
Even if mortgage interest rates have never been better, it may seem that the easy availability of cheap investment properties has dried up. The massive numbers of foreclosures that glutted markets all over the country in the aftermath of 2008’s housing collapse are now out of the system. And mortgage servicers such as the government’s Fannie Mae have undertaken bulk sales of foreclosures to large investment groups, locking out independent investors.
But foreclosures are still percolating through the system – the so-called “shadow inventory” of foreclosure cases that were stalled due to the backlog created by so many mortgage defaults between 2008 and 2011. Those homes are now trickling into various local and regional markets. Another source of bargain investment property is the short sale market, in which struggling homeowners sell the property for less than the mortgage is worth simply to get out from under it. And since the US housing market is actually composed of many markets, prices in some areas of the country may be lower due to specific conditions there.
3. Rising Rents
In general, the rental market is thriving. Since mortgage standards are tighter in reaction to the 2008 housing crisis, fewer people are actually able to buy a house. Former homeowners who lost their homes to foreclosure are now long-term renters, as are numerous others with credit problems or not enough money for a down payment. These kinds of renters join the expanding pool of traditional renters, creating a demand for rental housing that’s reflected in higher rents.
Gazing into the future has its drawbacks. But new investors and those considering taking the first step need only look at present circumstances to know that now really is a good time to blend wisdom and prudent action to get started in income property investing.
The Solomon Success Team