Are you planning on buying a residential property with the hopes of getting greater appreciation in the future?
According to a report by PWC Global, the leading professional services networks in the world, “12 million Americans spend more than 50% of their earnings on their home purchase”. This is astonishing because “78% of U.S. workers are living paycheck to paycheck“. Even if you are financially stable enough to afford the mortgage payments along with high interest, there are challenges ahead that may make you regret the decision to invest in a residential property.
Here are the 4 reasons you shouldn’t invest in a residential property, at the moment
1. It requires a lot of work
“The average homebuyer took 73 days to close on a property after the first initial visit to the home” –Redfin
Investing in residential property might seem easy initially. But it’s not. To successfully invest in a residential property, in other words, to make a lot of money in the future, you have to get a lot of things right. First, find a trustworthy real estate agent, then hunt for the perfect home within your budget, next, hire a property manager, and the to-do list goes on and on. Instead of wasting your time, energy and money in investing in a residential property, I would recommend you to invest in an “index fund”.
2. Mortgage rates could jump high soon
According to the Mortgage Reports, mortgage rates are at its lowest in September 2019. This is the best time to buy a home. However, the rate is expected to jump high in October. Mortgage rates fluctuate a lot. To find the right rate for you, you are required to wait until the right time, the time when the rates are lowest. However, as the rate drop, home prices skyrocket. Hence, investing in real estate is always a gamble. Lastly, as a general rule of thumb, remember that a 4.5-5 % interest rate with 20-25 % down payment is considered moderate.
3. Bad tenants could add problems to your life
If you are buying a home intending to rent it out until you pay off the mortgage, you might be making the biggest mistake of your life. Especially, if you can’t make the payments on time, yourself. There have been countless cases where a landlord had to evict a tenant due to bad behavior or performing a criminal act. Not all tenants are financially stable enough to pay the rent on time. How are you planning to make the mortgage payment if you don’t have the house rent in your hand at the end of every month?
4. You could lose your property if a recession hits again
A recession only affects those homebuyers who borrow more money than they could afford. What would you do if you were to lose your job due to the recession? How will you make your monthly house payments? It’s a whole different ball game if you are buying a house by selling one of your assets or you have a source of income capable of withstanding the heavy blow of the recession.
If you still want to invest your hard-earned money in a residential property, make sure you hire a good property manager. A good property manager will make up for your lack of experience in managing properties. They are also quite essential when you have more than one property. That too spread out at different locations.