Why Invest in Real Estate in 2021
Prices might be high, but interest rates are low. Because of the recent pandemic, the Federal Reserve cut interest rates to record lows. They have even pledged to keep it at this rate until 2023. This affects not only residential real estate, but commercial properties as well, which makes investing a great opportunity in 2021.
Now that’s not to say interest rates wont increase. After the 2016 election, they rose by 0.5%, from 3.75% to 4.20%. But with new policies in place aimed at economic recovery, rates will stay low for at least three years.
The most common category of real estate is residential.
- Manufactured homes
- Investment properties
- Second homes
For the scope of this article, investment properties will be used to refer to each category.
Investment properties are non-owner occupied, purchased with the intention at building residual income. Although there is almost always work involved when investing with this type of property, a good majority is completed when the house is purchased, tenants are found, and payments are coming in. Management companies also help mitigate the stress involved when working with tenants.
Since interest rates are low and will remain that way for the next three years, buying a property and renting it out is a great investment.
Commercial real estate is stable. There is a high return on investment, even when there are many properties on the market. This is through rental income and capital appreciation.
When investing in CRE, the expected return on investment is called the capitalization rate. When interest rates go up, capitalization rates tend to go down. With the mercurial nature of the election, it is uncertain which direction interest rates will shift. Although thanks to the Federal Reserves stance on economic recovery, there is little chance that they will increase too dramatically. That makes it a great time to invest.
Categories range from apartments to office buildings.
- Special Purpose
The interest rates for these types of loans vary since there are many types available.
- Conventional mortgage loan rates
- Private banking rates
- SBA 504 Rates
- SBA 7a Rates
- USDA Rates
- Bridge Rates
- Construction Rates
- Mezzanine Rates
INVEST IN YOURSELF
You can always invest in yourself. This is where you will get the most return on your investment. Whether that’s a home, commercial property, or your life in general, this is the way to go.