real estate investmentReal estate investment philosophy can be divided into two categories. The first one is the conventional approach that includes things like getting a fixed rate mortgage and refinancing etc. But this has more or less been replaced by post-housing bubble mind-set that focuses more on damage control. In the following paragraphs, we will see which of the above mentioned approaches will work best in 2014.

Long-Term Property Value

Traditionally it was believed that interest rates go up with time, so you need to acquire finance quickly. But now we know that there are no stable trends on the rising and falling of principle on loans. While some buyers are still rushing to purchase a home or refinancing, the sensible thing to do is to focus on the long-term value of the property to determine whether it’s worth getting into a 30-year mortgage or not. In addition, even though this is not the trend, you should consider shorter-term loans, i.e. if it suits your budget. This makes sense because people usually don’t live in one house for 3 decades, at least not in this market.

Think Before you Refinance

Following the previous point, the traditional approach was going for refinancing with immediacy. However, now you should take your time and evaluate factors like:

  • The possibility of your interest rate decreasing
  • The possibility of your loan payment decreasing, and whether the loan term will become shorter
  • Are the closing costs feasible?

There are several financial apps and online tools to help you do these calculations. If the answer  is affirmative for at least 3 factors, refinancing maybe a wise option. But rethink your plan if the results show otherwise.

Rent vs. Buying

Finally, buying property may be a great way of generating wealth, but nowadays the trend is more towards renting. Here is what research shows.

The average home living period is now at 8½ years, though this may vary with demographics. A major determinant is unemployment conditions, which means people who are starting their careers will aim to achieve financial stability before settling down.

Once again, online financial tools may help you ascertain whether you should rent or buy, but there are some considerations. For instance, it is usually assumed that the average American stays in a home for 7 years, which falls below the latest research. Ideally, this time frame should be around 10 years.

Source: www.reuters.com

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