Most of us like to invest our money in ways that make us more money. But most people tend to invest only in the stock market. There is nothing wrong with that, but it looks like next year could be a good year to buy an investment property to generate rental income. With rental income, you can enjoy passive cash flow without too much work, if you do it right. The way the economy is shaky, but 2024 could still be a good year to invest in real estate.
The timing looks favorable for buying investment properties and rental income homes in may regions of the country in 2024.
Here are some of the reasons why below. Also, we provide you with some ideas on where and how to invest to generate your rental income.
#1 Economic Growth Looking Strong
There were indications that Q4 2019 and Q1 2020 could experience strong economic growth beyond what has been achieved in 2023. According to the GDPNow Real GDP forecast for this quarter, growth for Q4 could top 4.
If the growth rate indeed is in this range, this will bring about some very tantalizing possibility for those who buy investment properties. GDP growth in the range of 4% has not been seen for at least a decade. If there is that type of growth, more workers will have money in their pockets and will be working more than they have in years.
When workers have more money, it is natural for the housing market to get stronger. More workers are going to be renting homes and apartments. So, with strong economic growth on the horizon for 2024, buying investment properties in strong markets could be a great decision for 2018.
#2 Unemployment Rate Is Approximately 4%
It appears that unemployment will be only 4% or so for 2023. This also suggests that economic activity is picking up. When more people are working, more people need places of their own to live. This means that rental property investors should see lower vacancy rates and tighter demand for rental housing.
#3 Interest Rates Are Still Low on Investment Properties and Rental Homes
Mortgage interest rates have not climbed as much as many people expected in 2024. For owner-occupied homes, it is possible to get a fixed rate mortgage in the near record-lows. Get more details on rental property loans.
While it’s true you will likely pay higher rates for a loan on an investment property, it is still a good move to buy rental homes and investment properties with loans if you have the credit and assets to do so. Check mortgage rates for second homes and investment properties now.
#4 Home Ownership Is Still Near All-Time Lows
The US government does not consider it good news that home ownership is near an all-time low of 62-63%, but it can be very good news for rental property owners.
Obviously, the more people who are in the rental market, the greater the demand for rental properties. With the economy heating up and many people still unable to buy their own homes due to credit problems from the last economic downturn, rental property owners will be in a very good position in 2018.
#5 Rents Are Near an All-Time High
Rents as a percentage of income are near a high of 29%. For comparison’s sake, the rate was 25.8% from 1985 to 2000. So, this is allowing may rental property owners in major cities to increase rents. This means a better rate of return for your financial investment.
If you own rental properties in Los Angeles, New York, San Francisco or Miami, you probably can do extremely well in 2018. In those cities rents are costing people 45% of their income. Meanwhile, in cities such as Dallas and Houston, it is more around 30%. Many believe that 2018 will be another great year to buy a rental home with affordable financing still being predicted.
#6 Oil and Gas Prices Are Staying Low
Gas prices in much of the country continue to be at $2 per gallon or below, unless you are in California or other high-priced areas. With gas prices low, more renters are able to afford living in their own places, which leads to a lower vacancy rate for rental property owners in 2018.
As far as where to consider investing your money for rental properties, these look like good bets for multifamily properties for 2018:
- Colorado Springs
- Los Angeles
For buying rental homes, experts believe that these cities have very good potential for 2018:
- Oklahoma City
Investing in real estate can be a smart way to grow your wealth and diversify your financial portfolio. However, securing the right financing for an investment property is crucial. Here are the top five home loans for buying an investment property:
A conventional mortgage is a popular choice for investment properties. To qualify, you typically need a good credit score (around 620 or higher) and a down payment of at least 20%. These loans offer competitive interest rates, and you can choose between fixed-rate and adjustable-rate options. The terms and rates can vary, making it essential to shop around for the best deal.
While FHA loans are primarily designed for owner-occupied properties, they can be used for multi-unit properties, which can serve as both an investment and a primary residence. To qualify, you’ll need a credit score of around 580 or higher, and you can make a down payment as low as 3.5%. However, you must live in one of the units for a minimum period, making it ideal for house hacking or a property with multiple units.
If you’re a qualified veteran, you may be eligible for a VA loan to purchase an investment property. VA loans offer favorable terms, including low or no down payment requirements, competitive interest rates, and no private mortgage insurance (PMI). Keep in mind that VA loans have strict occupancy requirements, so you should plan to live in one of the units.
If you own your primary residence, you can leverage the equity in your home to finance an investment property. A HELOC allows you to tap into your home’s equity as a revolving line of credit. This flexible financing option can be a great way to fund your investment, but remember that it’s secured by your primary residence, putting it at risk if you default.
Private Portfolio Loan
A portfolio loan is a unique option offered by some local banks or credit unions. These loans don’t conform to standard guidelines, allowing for greater flexibility in lending decisions. If you have a non-traditional property or unique financial circumstances, a portfolio loan might be your best bet. Interest rates and terms can vary widely, so you’ll need to research local lenders to find the right fit.
When considering a home loan for an investment property, it’s essential to keep the following factors in mind:
1. Property Type: Different loan options may have specific requirements based on the type of property you intend to purchase. Whether it’s a single-family home, multi-unit property, or condominium, make sure you choose a loan that aligns with your investment goals.
2. Down Payment: Your down payment can significantly impact your loan options and terms. A higher down payment often leads to more favorable rates and less stringent requirements.
3. Credit Score: Lenders consider your credit score when approving your loan application. A higher credit score can open the door to better interest rates and terms.
4. Local Market: Interest rates, loan programs, and eligibility criteria can vary by location. Research your local market and consult with lenders who are familiar with your area.
5. Long-Term Strategy: Consider your long-term investment strategy. Some loans may be more suitable for long-term rental properties, while others are better for house hacking or short-term flips.
6. Consult with a Professional: It’s advisable to work with a mortgage broker or financial advisor who specializes in investment properties. They can help you navigate the complexities of real estate financing and identify the best loan option for your specific circumstances.
Investing in real estate can be a lucrative venture, and choosing the right home loan is a critical step in your journey. By carefully evaluating your options and considering your investment goals, you can secure the financing that best aligns with your objectives and financial situation.
Summary on Buying a Rental Home or Investment Property
2024 looks to be a strong year to invest in real estate properties. The market generally is getting stronger, rental demand and prices are going higher, and the job market is strong. For investors with less cash, you may want to go for lower cost but high growth cities such as Oklahoma City and Cleveland. But investors that have a lot of cash will definitely be attracted to the strong markets in San Diego, San Francisco, Seattle and Los Angeles.