COVID-19 has people concerned about the state of the economy and their own financial futures. Buying a rental property in these circumstances might be a good idea, but before you decide to do so, consider the risks and make sure you can afford it.
Reasons to Invest in a Rental Property
The stock market’s recent volatility has made investors nervous. Real estate, however, is a tangible asset that may hold its value better than stocks and may increase in value, even if we find ourselves facing a recession. Housing prices tend to be more stable than stock prices during recessions because people still need places to live. If you are already invested in the stock market, adding a rental property to the mix could diversify your portfolio and provide some stability in these uncertain times.
The economic turmoil has caused many people to see their incomes fall. Families who have to cut their expenses may need to move to a less expensive home or may decide to downsize from a house to an apartment. That means you could have plenty of demand for rental units.
Some owners of rental properties were planning to sell them before the coronavirus pandemic hit and still need to sell despite the current situation. That means you might be able to buy a rental property at a significant discount.
The economic toll of the coronavirus pandemic led the Federal Reserve to cut interest rates, which led to lower mortgage rates. That means that you could purchase an investment property and have a lower monthly payment than you might have had if you had taken out a mortgage just a few months ago. You might also be able to purchase a larger property or one with more amenities than you would have otherwise been able to afford.
Only Buy a Rental Property If You Can Weather Financial Uncertainty
An investment property could generate cash flow, provided the units were rented out and tenants paid their rent on time each month. If you decide to invest in real estate, be prepared for the possibility that some units would be vacant, at least some of the time.
Due to COVID-19, many people have been furloughed or laid off. Some businesses that shut down will not reopen. Even if your tenants had jobs and expected to continue to be employed, some of them could find themselves out of work after moving in.
If you buy a rental property, you will have to set aside money for maintenance, repairs, insurance and property taxes. You should also be sure that you will be able to cover all your expenses if units are vacant or tenants are unable to afford their rent.
Should You Buy a Rental Property Now?
Real estate is generally a more long-term, stable investment than stocks. Given the current economic situation, you might get a good deal on an investment property. Just be sure that you could get by if the property didn’t generate steady cash flow right away.