Is Now a Good Time to Invest in Real Estate?

Despite some of the lowest mortgage rates in history, there are reasons to think twice about real estate as an investment.
By Richard Barrington

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is real estate a good investment

Mortgage rates have been among the lowest in history. This reduces the cost of housing for new buyers and homeowners who refinance. Are low mortgage rates enough to make housing attractive purely on an investment basis? When it comes to buying and selling properties for a profit, there are some reasons to look beyond today’s mortgage rates.

Why Rates Aren’t as Attractive as They Seem

Buying real estate might seem like one of the few ways investors can turn the low-interest-rate environment to their advantage. However, low mortgage rates alone might not be enough to make buying properties a winning investment strategy. Here are some reasons why:

1. Mortgage rates have not fallen as much as some bank rates. At 2.62%, rates for 30-year fixed-rate mortgages (as of June 2021) are below their historical average. That sounds pretty good, except when you consider that national average savings account rates are less than 1%. In other words, banks have dropped the rates they pay consumers for deposits more than they have dropped the rates they charge for borrowing.

2. Real estate prices may be vulnerable if mortgage rates rise. The trade-off of buying when rates are low is that if rates rise, it could adversely affect real estate prices. This would not affect your cost of living in the home, but it could affect your return if you plan to sell.

Making Mortgage Rates Work for You

The fact remains that current mortgage rates are very low on an absolute basis. That means that today’s mortgage rates help make housing more affordable, and thinking about them that way is the key to making them work for you financially.

If you want to think about real estate strictly from a flip-this-house mentality designed to make a near-term gain, current mortgage rates are not such a great deal. This is where rates being high relative to inflation along with the vulnerability of prices to rising rates work against you.

In truth though, for most people, buying individual properties is not an ideal investment approach under most circumstances. Real estate is not considered a liquid asset. This means that if you needed money fast, your real estate investment would not be the place to find it. Getting money out of real estate involves either selling it, refinancing it, or taking out a second mortage. All of those things take a month or more to accomplish.

On the other hand, if you think of mortgage rates in terms of their impact on your living expenses, today’s rates do look attractive. Whether through renting or buying a house in the future, you are going to have to pay something for shelter, and having mortgage rates low on an absolute basis helps reduce your monthly mortgage payments.

Pool Your Money to Invest in Real Estate With a REIT

In short, current mortgage rates are a better deal if you are buying for your own residence and for the long-term than as a means of buying properties with the hope of reselling them at a profit. If you’re really itching to invest in real estate during this hot market, another way to do that is through a real estate investment trust (REIT). Rather than owning an entire property on your own, you buy into an investment fund that deals in real estate purchases. DiversyFund is one such REIT, and you can do your transactions online.


About Author
Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).