Will Your Duplex Development Loose Value Due To The Looming Housing Price Crash?
If youre a real estate investor youre likely concerned about how the looming housing crash will affect your investments.
Are your property values going to go down? Well, it depends. If youre prepared it may have little to no impact on your investments. However, if you dont take the necessary steps ahead of time you could be hit hard.
To help you prepare your duplex developments, and other properties, well share our top tips to get you through a real estate crash. Well also explore the potential negative impact a crash can have on your investments and the economy as a whole.
How Can a Housing Crash Impact Your Duplex Development?
A real estate crash doesnt just affect housing prices, it also impacts the wealth of most people across the country. This can have serious economic consequences for everyone.
In the event of a crash, expect demand for duplex developments to be reduced. Many households will have lower spending power as a result of the economic downturn, and any income they do have will likely be used to pay off their existing mortgages. With low demand for duplex developments, you should anticipate a low return-on-investment (ROI), resulting in your property losing some of its value.
As an investor, the worst-case scenario is being trapped with negative equity. This is a situation where your duplex development is worthless compared to the mortgage you ought to pay. In most cases, this usually results in investors losing any opportunity for having equity withdrawal.
How Can I Protect My Duplex Development?
Luckily, there are steps you can take to protect your duplex development from a housing crash. Here are four tips you should follow:
Know Your Buying Power
One of the best ways to protect yourself is to know your buying power and not exceed it when investing. If youre thinking about starting a development begin by calculating your budget. This not only includes your building costs, but also the expenses involved in maintaining the property as well.
Some mortgage lenders and real estate agents will try to talk you into spending more. Unfortunately, not all of them have your best interests at heart. Determine what you can afford to spend and stick to that number at all times.
This way, youll ensure you dont get involved in a project you cant afford and youll be hurt a lot less if a crash occurs.
Avoid Zero Downpayment Financing Plans
When investing in a duplex development there many different financing plans to consider. One of these options is zero downpayment financing. A big reason why many investors choose this type of plan is that it allows you to get a loan with no financial investment.
However, with this type of arrangement your lender is essentially the property owner, even once you start making your payments. This becomes a big problem if a housing crash occurs. They could simply take the property from you and sell it to recover their funds, potentially leaving you homeless.
To avoid this, opt for a finance plan that has a 10% or 20% downpayment rate. This way youll be able to stay in control of your investment.
Get A Fixed Rate Mortgage
Mortgages are an investors best friend, as they make it possible for people to invest in new duplex developments without having to pay for them all at once. However, not all mortgages are created equal. There are two main types you need to be aware of: adjustable and fixed-rate.
With an adjustable mortgage, your rate can go up or down depending on a number of factors, including the economy and the housing market. This means if a housing crash occurs your rate could jump up, possibly higher than you can afford.
A fixed mortgage rate, on the other hand, means your rates will stay the same regardless of what happens in the market. It also allows you to pay lower installments. So, if you want to protect yourself from a crash make sure to choose a fixed-rate mortgage.
In the event of a real estate crash, you may find yourself panicking and thinking about selling your development in order to recoup some of your losses. But unless you actually need the money this is the worst thing you can do.
Remember, the value of your duplex development only matters if youre selling it. If you dont like the current value of your property then simply hang on to it and wait until someones willing to pay a fair price for it.
If youre a long-term investor and youve taken the steps to protect yourself then there really isnt anything to worry about. The market will bounce back eventually and as long as you choose the right time to sell you should make an excellent return on your investment.