Adding an income property to your real estate portfolio is a great way to generate extra revenue while hanging onto an asset with the potential to appreciate over time. And given today's historically low mortgage rates, now's a good time to buy residential property.
There's just one problem: Housing inventory is so tight that it's not only driving sellers to list their homes at higher prices but also forcing buyers to outbid one another to snag the limited homes that are available. In fact, 56.8% of all home offers were subject to bidding wars in October, according to Redfin, and that's consistent with the way things have played out in the housing market since the summer.
The question: Should you, as an investor, be willing to enter a bidding war to buy an income property? Or should you sit tight and wait for inventory to open up instead?
Is a bidding war worth it to you?
Many investors are being lured into today's seller-centric housing market by ultra-competitive mortgages rates. But seeing as how the economy still has a long way to go in terms of recovery, there's a good chance mortgage rates will stay low for quite some time -- likely throughout 2021, and quite possibly well beyond. In light of that, engaging in a bidding war doesn't make sense if your primary motivation to buy an income property now is to capitalize on the low mortgage rates that are currently available.
That said, there's another reason to buy income properties now: Rentals in smaller cities could boom following the pandemic as employers make the decision to allow people to work remotely on a permanent basis, and that gives you an opportunity to capitalize. Furthermore, there's talk of a coronavirus vaccine becoming widely available to the general public by the middle of 2021. If that indeed happens and life is able to get much closer to normal, there could be a surge in vacation-home demand as bored Americans rush to pack their bags and explore different corners of the country that were, for the better part of 2020, largely off limits. In these scenarios, putting off the purchase of an income property could mean missing out on a huge wave and limiting your revenue potential.
As such, it could pay to engage in a bidding war today if it means snagging a home in a prime location at a price point that's inflated but reasonable. If you're going to go this route, though, be sure to establish a limit as to how high you're willing to go.
Remember, there's a good chance housing inventory will open up significantly during 2021, at which point bidding wars may become less prevalent and home prices may start to come down. Since mortgage rates will likely hold steady, for the most part, it may not hurt to wait things out to avoid paying more than necessary for a home, especially if you have other properties that are already generating a nice stream of income for you.
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December 05, 2020 at 12:00AM
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Should You Enter a Bidding War to Buy an Income Property Today? - Motley Fool
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