Nationwide, homebuyers and investors alike are taking note of a trend that has been affecting markets large and small for years: tight inventory. There are various reasons for this inventory squeeze, though they usually can boil down to two primary causes. Let us dive in a bit further to see how construction and home sales can affect the real estate investor market, and what you can do about it!
So what are the biggest reasons for the current inventory squeeze?
Lack of new construction: While the reasons are varied, there is a nationwide shortage of new construction to meet the overwhelming demand for housing. As it is, even though many markets are building as fast as they can, they’re unable to rise to meet demand enough to offset rising costs. The cost of labor and construction are on the rise and, as a result, first-time homebuyers often have a tough time with sticker shock on new construction.
At the same time, there is an issue with existing inventory, too.
Boomers and investors aren’t selling: Recent studies suggest that boomers by and large aren’t motivated to sell their homes. Where millennials and first-time homebuyers are locked out of new construction that isn’t priced for entry-level homebuying, if old inventory isn’t moving, they’re stuck! Investors, too, contribute somewhat to this issue. After the housing crash circa 2009, investors swooped in and helped revive the housing market by buying foreclosed homes.
Now that they have them, however, they’re buy-and-hold and dedicated to the "hold" part. Who can blame them if they’re turning a profit?
The issue is that with so many investors employing this strategy, it contributes to the current stall in the real estate market and the issue of low inventory.
So with low inventory causing problems (nationwide sales fell more in December than expected as inventory dipped to record-level lows), how does it really affect real estate investors?
2 Ways Tight Housing Inventory Affects Real Estate Investors
Property Prices & Profit Margins
One of the most obvious consequences of the tight inventory nationwide is rising home prices. While demand is not necessarily a bad thing, when it gets out of control, it creates problems for real estate investors. For many, finding a great price on a property is a crucial element to preserving one’s profit margins. If the cost is too high, the property just isn’t worth investing in. While price becomes less of an issue the more successful you get, new investors are in a similar position as first-time homebuyers.
These properties with high price tags just aren’t worth pursuing. While there are ways you could possibly make it work, it ultimately just won’t make sense and you’ll find yourself stressed by a tight profit margin.
Arguably this demand drives up rental prices as well and, perhaps, makes it work out, but that may not always be the case.
Even if money isn’t an issue, tight inventory does make finding investment opportunities that much more difficult. For real estate investors, finding the right investment property can be a long process. When you add tight inventory into the mix, it gets that much more difficult. If you find a decently priced property, you likely don’t have much time to act. Every property may turn into a bidding war. You may become fatigued and discouraged when you lose more properties than you win.
A lack of opportunities and the competition you have to face is something investors have to figure out how to deal with.
What Can Investors Do About It?
Until something changes and inventory increases, there’s not a lot real estate investors who want to keep buying properties can do. What you can do, however, is change your strategy. If you want to keep buying real estate, your answer is turnkey real estate investment.
You see, you don’t have to go to properties that are on the market for the average homebuyer in order to invest. Turnkey properties are reserved for you, the investor, purchased by the provider, solely for the purpose of generating income.
You’d be hard-pressed to find a better solution. Rather than throwing elbows and bids against other would-be buyers, you can work with a turnkey provider in great markets across the nation, acquiring properties that have been selected specifically for their income-earning potential.
In a tight-inventory environment, it’s a clear-cut solution!
If you've not looked into turnkey investing lately, see how it might be just what you need to get the passive income you want without the hassle!