Regardless of the type, investors’ first and foremost concern is whether or not now is the right time to buy. Surprisingly, the answer to this question differs depending on the investment at hand. The ideal time to buy income property may not be the right time to acquire other types of investments and vice versa.
The way in which income property is acquired affects the success of the investment more than the time at which it is purchased. This is due to reliance of income property on economic fluctuations. In present circumstances this is overtly apparent as the government’s expenditures continue to surpass revenues in response to the recession.
There is both support of and opposition to this method, but the fact remains that to allow this spending, new bills have been printed; therefore, there is too much money in existence.
When evaluating the timing of income property investment, past recessions can provide insight into the current economical situation. The severity of a recession is affected by the amount of excess generated in the previous recession. A longer span of time between peaks results in more overage.
In assessing the past 20 recessions, the average number of months between peaks is 59 with the most recent lasting 81 months. The average length of time between peak and bottom is 14 months. Based on this information and fact that the current recession is in its 20th month, investing in income property at this time would be a wise decision.
As far as the stipulations of how the income property is acquired, certain aspects must be addressed to ensure the purchase is set up correctly. Unsuccessful investors fail due to poor due diligence, negative spread, excessive debt, bad financial terms, and negative cash flow.
These problems are discussed in many past articles featured by NetGain and their resolution is crucial to the success of an investment. The upside is that in today’s market, the existence of excessive currency in circulation brings opportunity for investors to take advantage of higher interest rates and inflation. Structured properly, a real estate mortgage allows the investor to repay a loan with money that is less valuable than that which was initially borrowed.
There are several guidelines that will assist in creating a well-negotiated mortgage such as securing non-recourse debt, ensuring the mortgage is fully amortizing, and preventing any lock-in from exceeding one year. The interest rate should be fixed for the full length of the mortgage and the term should not be less that 20 years. Do not include a due date or prepay penalties that exceed 1.5%. Also ensure that assumptions are considered and are cannot be unreasonably denied.
Today’s economic environment presents an attractive investment opportunity for acquiring income property. Considering the key components discussed in this article will ensure that the transaction goes smoothly and the investment is set up for success.
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